Fortum Annual Report 2001 · NExOCTANE A technology developed by Fortum for the manufacture of iso-octane used as high quality gasoline component substituting MTBE. PAO Polyalphaoleﬁ

Annual R

eport 2001

Fortum

Keilaniemi, Espoo POB 1 FIN-00048 FORTUM, Finlandtel. int. +358 10 4511fax +358 10 45 24447www.fortum.com

Domicile Espoo VAT NO F1463611-4

Annual Report 2001

Contents

Glossary Investor Information1 Fortum in Brief2 The Year 20013 Energy Markets4 Message from the Chairman5 President and CEO’s Review7 Values and Strategy8 Financial Summary

28 Fortum Energy Solutions29 Fortum Markets

30 Human Resources33 Environment, Health and Safety36 Corporate Governance38 Board of Directors 39 Group Management40 Banks and Brokers Following Fortum

Financial Statements 2001 are attached separately.

14 Power, Heat and Gas17 Birka Energi18 Electricity Distribution

22 Oil Refining and Marketing26 Oil and Gas Upstream

Barrel (bbl)A crude oil barrel; 159 litres

1 MWmegawatt = 1,000 kilowatts (kW) = 1,000,000 watts (W)Unit of power. The power of a normal incandescent lamp is 25 to 100 W.

1 TWhterawatt-hour = 1,000 gigawatt-hours (GWh) = 1,000,000 mega-watt-hours (MWh) = 1,000,000,000 kilowatt-hours (kWh)Unit of energy. An incandescent lamp of 100 watts consumes 0.1 kWh of energy an hour.

BioMACA biomass-fi red power plant based on Fortum’s own boiler technology (MAC = Modular Advanced Combustion).

EHVI Enhanced High Viscosity Index is a term describing lube oil quality. The chemical structure of the oil may vary from one production process to another. EHVI quality base oils are used in the manufacture of high-quality lubricants for industry and traffi c.

FIA Flow Improver Agent. A product that reduces fl ow resistance in pipelines and this allows greater fl ow rates through pipes.

NExCC A cracking technology developed by Fortum. Cracking breaks long carbon molecules so that lighter oil fractions can be refi ned from heavier oil fractions.

NExTAME and NExETHERS Technologies developed by Fortum which can be utilised in the cost-effective manufacture of gasoline ethers that are used to improve the combustion.

NExOCTANE A technology developed by Fortum for the manufacture of iso-octane used as high quality gasoline component substituting MTBE.

PAO Polyalphaolefi n. A synthetic base oil used in the manufacture of high-quality lubricants.

Glossary

Number of shares traded, mill. shares(daily average)

01001 4 7 10 1 4 7 10

Distribution of ownership as of 31 December 2001

Quotations, EUR (monthly average)

Finnish State 70.7% Financial and insurance institutions 3.7% Households 5.7% Other Finnish investors 9.7% International investors 10.2%

www.fortum.com/ investors

Annual General MeetingThe Annual General Meeting of Fortum Corporation will be held on Tuesday,

26 March 2002, at 4.00 pm, at Finlandia Hall, Mannerheimintie 13 e, Helsinki.

Registrations for the AGM are requested by 4.00 pm, on 19 March 2002. Registra-

tions can be done by telephone on +358 10 452 9460, by fax on +358 10 262 2727,

by e-mail to [email protected] or by mail to Fortum

Corporation, Marjatta Rantiala, POB 1, FIN-00048 FORTUM. Written registrations

must arrive before the end of the registration period. Any powers of attorney must be

delivered in connection with the registration.

Payment of dividendsThe Board of Directors will propose to the AGM that a dividend of EUR 0.26 per share

be paid for the fi nancial period 2001. The record date for dividend payment is 3 April,

and the suggested dividend payment date is 10 April 2002.

Interim ReportsInterim Report 1 January - 31 March 2002 will be published on 25 April 2002

Interim Report 1 January - 30 June 2002 will be published on 25 July 2002

Interim Report 1 January - 30 September 2002 will be published on 24 October 2002

The Annual Report and Interim Reports are available in Finnish, Swedish and

English and can also be read on Fortum’s Internet home page at www.fortum.fi in

Finnish, and at www.fortum.com in English and Swedish.

Contact informationFinancial information can be obtained from Fortum Corporation, Corporate

Communications/Heidi Jokinen, POB 1, FIN-00048 FORTUM,

tel. int. +358 10 45 24861, fax +358 10 45 24798, e-mail [email protected].

The IR contact is Raija Norppa-Rahkola, Vice President, Investor Relations,

tel. int. +358 10 45 24135, fax +358 10 45 24327, e-mail raija.norppa-

[email protected].

Investor Information

Share information for 2001

• Highest share price EUR 5.70• Lowest share price EUR 4.05• Average share price EUR 4.79• Total number of shares traded, 134.5 million• Market capitalisation EUR 4,017 million (31 Dec 2001)

Largest shareholders as of 31 December 2001

• Finnish State• Social Insurance Institution• Ilmarinen Mutual Pension Insurance Company• Varma-Sampo Mutual Pension Insurance Company• The town of Kurikka

Additional information about shares and shareholders is available on pages 39-42 of the fi nancial statements.

1.2

0.8

0.4

01001 3 5 7 9 11 1 3 5 7 9 11

2

4

6

1

Fortum is one of the leading energy companies in the Nordic countries. We operate in all parts of the energy chain, from production to refi ning, distribution, sales and marketing, and from energy-related engineering to operation and maintenance. Our main products are electricity, heat, traffi c and heating fuels.

In power and heat generation, and in elec-tricity distribution and sales, we are the second largest company in the Nordic market. We are the market leader in the production and mar-keting of high-quality and environmentally be-nign petroleum products in the Baltic Rim. In addition to our principal business area - the Nor-dic countries and the Baltic Rim - we also oper-ate elsewhere in Europe and in selected markets in North America and Asia.

Our customers include industrial and energy companies, small customers and international oil companies.

In 2001, our net sales totalled EUR 10.4 billion, and we employed on average 14,803 people. The shares of Fortum Corporation, which was established in 1998, are quoted on the Helsinki Exchanges.

Fortum in Brief

Fortum Corporate Structure

Power and Heat Generation

Sector Portfolio Management and Trading

Heat

Gas

Electricity Distribution

Birka Energi

Oil Sector Exploration and Production

Oil Refi ning

Oil Retail

Shipping

Other business units Fortum Energy Solutions

Fortum Markets

www.fortum.com/corporate info

The Year 2001

Fortum implemented its strategy and focused operations on its core market, the Nordic countries and the Baltic Rim. Net debt was reduced considerably and the balance sheet strengthened. The restructuring programme continued and the new corporate structure became effective at the beginning of October. The most signifi cant development was the agreement to purchase the remaining half of the Swedish energy company, Birka Energi AB.

• Our result improved slightly, despite the weakened market at the end of the year.• Interest-bearing net debt decreased by almost one billion euro.• Cash fl ow remained strong throughout 2001.• A better year for the electricity businesses, poorer for oil.• We decided to concentrate our oil and gas production in Northern Europe, and power generation in the Nordic countries.• Two new units – Fortum Energy Solutions (FES) and Fortum Markets – were established to develop customer relationships.• The performance improvement programme continued throughout the whole Group.• Share price increased, trading picked up.

Key fi gures 2001 2000

Net sales, EUR mill. 10,410 10,614

Operating profi t, EUR mill. 914 906

Profi t before extraordinary items,

EUR mill. 702 633

Earnings per share, EUR 0.57 0.55

Equity per share, EUR 6.49 6.32

Capital employed (at end of period),

EUR mill. 11,032 11,365

Interest-bearing net debt

(at end of period), EUR mill. 3,674 4,626

Investments, EUR mill. 713 3,131

Cash fl ow before fi nancing activities,

EUR mill. 844 -685

Return on capital employed, % 8.7 9.4

Return on shareholders’ equity, % 8.3 8.6

Gearing, % 54 73

Average number of employees 14,803 16,220

3

Energy Market

Fortum operates in the Nordic electricity mar-kets, which belong to the most deregulated in the world. The common Nordic market creates growth potential for power generation and sales. In Central Europe, especially, the transmission capacity and arrangements between different countries restrict the transmission of electricity. The European Union aims at opening a single electricity market by 2005.

Nordic consolidation continuesThe players in the electricity markets are de-creasing in number and increasing in size. In the Nordic countries, there are still large numbers of small municipal electricity companies, but these are transferring ownership, either fully or partly, to larger energy companies. Moreover, industry is continuing to divest its energy pro-duction. New companies are entering the deriva-tives markets.

Lively electricity tradeElectricity consumption in the Nordic countries is increasing at an annual rate of about 1–2%, but no new production capacity has been built in recent years. In Finland, the Government has approved an application for a decision in princi-ple on constructing a fi fth nuclear power plant. The application is now being heard in Parlia-ment, and a decision on the matter is expected during spring 2002. A decision in principle is not the same as a resolution to construct a nu-clear power plant. The fi nal decision on build-ing the plant will be made by the applicant, Teollisuuden Voima Oy, in which Fortum has an interest of 27%.

Trading in electricity is increasingly carried out in power exchanges. Trading prices here also have a direct impact on electricity prices outside the exchanges. The Nordic power ex-change Nord Pool accounts for almost one third of all spot trading in the Nordic countries. En-ron’s share of the Nord Pool derivates trade was almost one third. The company’s withdrawal did not have any signifi cant impact on the function-ality of the Nordic electricity market, however. Several power exchanges, in which we are a member, operate in other European countries, for example, in Frankfurt and Leipzig in Germany

and in Amsterdam in the Netherlands. Fortum trades in electricity in the UK, too.

Tougher competition in the electricity end-user markets, changes in the market price situ-ation and inadequate risk management affected the results of many electricity sales companies.

Demand for oil down, natural gas upThe demand for petroleum products on the world market decreased throughout the year. In the last quarter, demand was even down com-pared with the previous year. With weakening demand, the over-supply of crude oil increased and the prices of petroleum products fell. Con-sumption of petroleum products in Europe in-creased by about one per cent in comparison with the previous year. Consumption in our main market, Finland, increased by more than two per cent.

OPEC lost some of its markets after cutting down production several times. In countries out-side OPEC, production continued to increase, especially in Russia, where production volumes grew by several percentages.

The concentration of oil trading continued, due to alliances between large companies, and the volumes in oil exchanges grew. Trading in futures markets became more diverse, and e-commerce gained more importance.

The European Commission’s proposals for a directive on quality requirements for traffi c fuels and for a directive on use of biofuels were heard. Several countries in northwest Europe, such as Germany and the UK, have already decided to promote the demand for low-sulphur and sulphur-free fuels under an acceler-ated schedule by means of tax differentiation.

Demand for natural gas increased by more than two per cent in the EU countries. The Euro-pean Union has focused particularly on deregu-lating the gas markets and improving the reli-ability of gas supply in Europe. Particular at-tention is being paid to future gas deliveries from Russia and related new distribution routes. In the Nordic countries, especially in Sweden, there is increasing interest in the use of gas in energy generation.

tunities. The negotiations on the enlargement of the EU, which are important for the Baltic markets, are reaching a crucial stage. The extent to which and when these arrangements will of-fer opportunities for new business remains to be seen. Our strategic position in this respect is good, though.

Corporate governance issues are a topic of lively debate throughout Europe and the world. In Fortum we are ready to revise company’s governance practices in order to support posi-tive value creation and hope that our share-holders are active in implementing new prac-tices in the spirit of a public company. As our operations have increased signifi cantly in Sweden, the composition of our Board of Di-rectors has also become more international. I hope that a similar development will continue in the entire company, too.

The Birka transaction, one of the core steps of our strategy, was realised by means of inter-nal fi nancing and debt instruments. No equity or ownership related instruments were available this time. The ability of the state and our other owners to support Fortum in its goal to create value will be of vital importance in order to secure active progress in the future. We assess our options from the perspective of a competi-tive public company, and intend to be active, relying on our owners’ support.

Our management’s determined efforts during the year have been successful. The oper-ations became more effi cient, the balance sheet was strengthened, and above all, our company is more homogeneous than before. I wish to extend my gratitude to the management and all employees for their work in achieving this.

The Board’s proposal to the annual general meeting on a dividend of EUR 0.26 per share is based on the performance of the company and confi dence in the future development of our main markets.

Matti VuoriaChairman of the Board

During 2001, a

number of

strategically impor-

tant steps were

taken at Fortum.

The efficiency of

the operations was

improved and

structures were

clarified. As

regards power,

the company

progressed in line

with its goals, as

the acquisition of Birka Energi AB’s shares owned

by the City of Stockholm was confirmed at the

end of the year. The European Commission has

later approved the transaction.


At the same time, our Central European com-petitors have increased their activity to gain a stronger footing in Northern Europe. In the large EU countries, on the other hand, the opening up of the internal energy market has hardly pro-gressed at all. These factors show that focusing our efforts on the Nordic countries and the Baltic Rim area has been the right choice. However, deregulation of the EU energy market can not re-main incomplete. I am convinced that restructur-ing in the European energy sector will continue and that Fortum has to be an active player in this development.

The energy dialogue between the EU and Russia has intensifi ed and is progressing to-wards issues relating to actual business oppor-

Message from the Chairman

5

We also aim to leverage on our ex panding customer base in order to achieve competitive product and service concepts.

On the basis of these guidelines we identifi ed a number of strategic and operative actions at the beginning of the year under review that will also help us to achieve our fi nancial objectives.

Good start to strategy implementationWe can all be satisfi ed with the results of our determined work. The most important achievement was the agreement to purchase the remaining half of Birka Energi, signed in

In line with our strategy, we are fo cusing

on the Nordic energy market and on creat-

ing the framework for long-term profitable

growth. Our aim is to build a leading power

company in this market area and to further

develop oil refining which focuses on high-

quality products.

President and CEO’s Review

November. This transaction is the most impor-tant step we have taken so far in implementing our Nordic strategy. Together with Birka Energi we are among the leading companies in all sec-tors of the power and heat business. Our posi-tion provides us with a strong springboard from which to participate in the ongoing restructuring of the Nordic power sector.

Restructuring in the oil industry also contin-ued during the year, mainly in Central Europe. Recently, however, it has seemed that major Russian oil companies have been increasing competition whilst striving to enter the Baltic market. We are monitoring the situation closely in Fortum. In these circumstances it is especially important to sustain our competitiveness. During the year we have strengthened our niche position in oil refi ning by increasing our capacity to pro-duce environmentally benign petroleum products.

At the beginning of 2001 we announced that we would be focusing our core business operations on the Nordic countries and else-where in the Baltic Rim. During the review year, we divested our interest in power plants in the UK and Thailand, and fi nalised the sale of the energy company in Hungary. We also signed an agreement to divest our oil fi eld interests in Oman in February 2002. On the other hand, we decided to invest in the production of the South Shapkino oil fi eld in Northwest Russia.

Prerequisites crea ted for developing customershipsIn order to enable us to maximise customer service we decided to combine our versatile know-how in power generation. During the year, we formed Fortum Energy Solutions (FES) to which we transferred all our expertise relat-ing to power plant engineering, construction, operation and maintenance, and modifi cation work. FES can thus offer customised solutions for every stage in the life cycle of a power plant.

At the same time, we addressed the prob-lems in engineering and technology. We di-vested Transmission Engineering and began a programme of major performance improvement measures in Power Plant Engineering. The tech-nology unit for the power and heat business was also in need of similar changes; the func-tions of the unit were devolved to other units or outsourced. In this way we created competence teams that are close to the business with the ability to meet demanding technology needs.

President and CEO’s Review continued

The establishment in the spring of Fortum Markets – replacing the former Energy House – was also based on the concept of developing customer relationships. It has already proved to be the right solution. Focusing on basic products and services in retailing electricity and heating oil has had a positive effect on the unit’s results. The unit now has an excellent starting point from which to develop new competitive prod-ucts and services, enabling us to provide our customers with even better service.

Results satisfactory, balance sheet strengthenedThe fi nancial results in 2001 were affected in particular by altered market factors at the end of the year. Although the shutdown of the Åsgard gas fi eld, the low international refi ning margin and the lower price of oil had an adverse effect on the last quarter result, our fi nancial develop-ment was nevertheless slightly better than that in the previous year. This was attributable to per-formance improvement actions in various parts of the Group, and increased electricity sales at a higher market price. Our own additional refi ning margin remained strong throughout 2001.

In the summer we realised that also organi-sational changes were needed to improve our performance. We wanted more autonomy for the business units, in other words, the power and re-sponsibility to operate more independently. We also aimed at a solution that would be in line with our strategic direction, and on the basis of this the Group’s organisation was simplifi ed early in the autumn. Instead of 26 performance units and four sectors, there are now 12 busi-ness units and two sectors. The larger and more appropriate entities comprised of clear business areas provide the units with the critical mass to better allow the achievement of their targets and more independent operations.

A main goal is to strengthen our balance sheet. During the year we decreased our net debt by almost one billion euro. This was made pos-sible by the divestments and a strong cash fl ow.

The disposal of our treasury stock in De-cember improved both our debt-paying ability and our share liquidity. We are delighted by the confi dence shown in us by new, prominent international investors.

Good starting pointWe have proved the credibility of our Nordic strategy and intend to continue on this path. Thanks to the Birka transaction, we now have

a unique opportunity to create a leading Pan-Nordic energy company. The task will be chal-lenging and success will require considerable effort from all our employees. The preparations made so far convince me that on both sides of the Gulf of Bothnia we have suffi cient ability, skill and commitment to create a better and more competitive entity from two fi ne companies.

The Birka deal resulted in a temporary weak-ening of our balance sheet. For this reason, we shall be paying particular attention to maintain-ing our fi nancial freedom of action. We have decided to continue to focus operations and accelerate the sale of non-core assets. Within 18 months we aim to dispose of assets worth about one billion euro. Our power business in Germany is part of this divestment programme. Neverthe-less, we are continuing our efforts to improve our competitiveness. We will continue to invest in environmentally benign traffi c fuels and biofuels in order to retain our position as a forerunner.

Our efforts to improve our competitiveness will also continue in the form of improving the effi ciency of our operations. In order to achieve our fi nancial goals, we must focus on what is most important and on actively adopting new, more effi cient operating practices.

The continuous process of change is a chal-lenge for the entire personnel. The key to our success is the ability to maintain the skills and enthusiasm of talented people. In order to improve leadership and business skills and to strengthen the Group’s joint management cul-ture, we have started a management and experts training programme for about 500 employees. Systematic and diverse training to develop em-ployee competence at every level of operations was continued in all the business units.

The year 2001 was very demanding for the personnel. I am pleased to say that there has been strong commitment to our common goals and that we have made great strides in the right direction. I wish to extend my profound gratitude to the entire personnel for their excellent work. We can all look forward with confi dence to the year ahead.

Mikael LiliusPresident and CEO


7

Co-operative spirit• respect, trust and responsibility• open and active communication

Values and Strategy

In all of its activities, Fortum strives for excellent performance. We want Fortum to be known as a customer driven company with a strong environmental commitment.

Fortum’s shared values guide our behaviourExcellent business

performance• customer satisfaction

• value creation

High ethics• honesty and integrity

• good corporate citizenship

Creativity and innovation

• continuous learning• readiness to change

Warm heart

Cool head

Clean hands

Create the leading energy

company

Develop a leading refi ning company

with focus on clean fuels and premium

components

Leverage our customer base

through innovative branding and

focused marketing

Our business plans follow Fortum’s strategy

Fortum focuses on the Nordic energy marketcreating a platform for long-term profi table growth

Excellent business performance

Open mind

www.fortum.com/investors

Financial Summary

Market reviewThe market price of electricity in the Nordic countries almost doubled compared with the previous year as a result of the decline in hy-dropower generation and growth in consump-tion. The average system price of the Nord Pool power exchange was EUR 23.2 (12.8) per MWh. The selling prices for end customers, too, increased in all the Nordic countries. The average price of electricity sold by us in the Nordic countries increased by 8% from the previous year. Electricity consumption in the Nordic countries increased by a preliminary es-timate of 2% from the previous year and totalled 392 (384) TWh.

The international oil refi ning margins de-creased in comparison with the previous year and were exceptionally low at the end of the year, on average USD 1 a barrel in the period from July to December. The Brent Complex margin averaged USD 1.9 a barrel in 2001, compared with USD 3.4 a barrel in 2000. Our additional margin in 2001 continued on an annual basis to be about USD 2 a barrel.

During 2001, crude oil prices varied from more than USD 30 to USD 17 a barrel. The price development of crude oil was steady at the begin-ning of the year, but towards the end of 2001 prices began to fall and at year-end were about USD 20. The average price of North Sea Brent light crude oil was USD 24.4 (28.5) a barrel. The average price of oil sold by us was USD 23.7 (27.6) a barrel. The price per oil-equivalent barrel of natural gas was USD 19.2 (19.8).

Net sales and resultsGroup net sales remained on the level of the previous year, and totalled EUR 10,410 (10,614) million. The electricity business’s net sales were up, thanks to increased electricity sales and the rise in the average price of elec-tricity. The decrease in the net sales of the oil businesses was mainly attributable to the fall in the price of crude oil and petroleum products compared with the previous year.

Fortum Group’s operating profi t was EUR 914 (906) million. The rise in the price of elec-tricity in 2001 together with increased produc-tion appreciably improved the results for gen-eration and sales. The decline in the crude oil price and the pipeline repair work at the Åsgard gas fi eld decreased the results for Oil and Gas Upstream. The results for Oil Refi ning and Mar-

keting were substantially reduced on account of the weakening international refi ning margin, inventory losses and the maintenance shutdown at the Porvoo refi nery. The result of the oil busi-nesses declined substantially in the last quarter.

The result for Fortum Energy Solutions (FES) was considerably higher than the previ-ous year (pro forma). It was weakened by the provisions made in connection with the sale of Transmission Engineering. On the other hand, the sale of the operation and maintenance con-tract relating to the Humber power plant im-proved the results of FES.

The trend in Fortum Markets was also posi-tive. This was attributable in particular to the performance improvement programme imple-mented in the unit. The unit’s fi gures are in-cluded in the fi gures for Power, Heat and Gas and Oil Refi ning and Marketing.

Inventory losses due to the decrease in crude oil prices and the depreciation of the coal stock totalled EUR 81 million (gains EUR 24 mil-lion). Inventory losses totalled EUR 65 million in the last quarter.

Operating profi t includes gains on the sale of fi xed assets and shareholdings, at EUR 149 (119) million. Correspondingly, non-recurring write-downs and provisions totalled EUR 57 (66) million.

Birka Energi has been consolidated by using the proportionate method on the basis of 50% ownership. The Birka Energi Group accounted for EUR 189 (175) million of Fortum’s operating profi t. The other associated companies have been consolidated by the equity method. Fortum’s share of the results of these companies, exclud-ing Birka Energi, totalled EUR 36 (46) million.

Profi t before extraordinary items was EUR 702 (633) million.

Profi t before taxes totalled EUR 702 (623) million.

The minority interest accounted for EUR 83 (46) million of the result for the period. The minority share was comprised almost entirely of the share belonging to owners of preference shares issued by Fortum Capital Ltd in 2000.

Net profi t for the period was EUR 459 (423) million and earnings per share were EUR 0.57 (0.55). Return on capital employed was 8.7% (9.4%) and return on shareholders’ equity was 8.3% (8.6%).

The Group’s net fi nancial expenses were EUR 212 (273) million. The fi gure for 2000

Refining margin in RotterdamBrent complex, USD/bbl

0100999897

0

–2

2

4

6

Market price of electricity, Nord PoolEUR/MWh

0100999897

10

20

30

40

Brent crude priceUSD/bbl

0100999897

10

20

30

40

0100999897

Net salesEUR mill.

15,000

10,000

5,000

9

included non-recurring expenses of EUR 33 million, resulting from fi nancing arrangements relating to the acquisition of power plant assets in Sweden. Taxes for the fi nancial year totalled EUR 160 (154) million.

Production and salesPower, Heat and GasOur electricity generation capacity in the Nordic countries was 9,149 (9,243) MW at the end of the year, while our total capacity was 10,223 (10,163) MW. Our electricity sales in the Nordic countries in 2001 amounted to 47.1 (45.3) TWh. Sales in Finland amounted to 27.6 (28.4) TWh and in the other Nordic countries 19.5 (16.9) TWh, including 50% of Birka Energi’s electric-ity sales. Outside the Nordic countries, our sales totalled 6.6 (6.1) TWh.

Our sales of heat in the Nordic countries were on last year’s level, 15.6 (15.6) TWh.

Electricity sales by area TWh 2001 2000

Total for Nordic countries 47.1 45.3

- Finland 27.6 28.4

- Other Nordic countries1) 19.5 16.9

Germany 3.6 3.9

Great Britain and Ireland 2.8 1.9

Other countries 0.2 0.3

Total 53.7 51.4

1) includes 50% of Birka Energi´s electricity sales, which were 11.4 TWh in 2001

Heat sales by area TWh 2001 2000

Sweden 4.7 4.1

Finland 10.9 11.5


Total 17.3 16.3

1) includes 50% of Birka Energi’s heat sales,which were 4.6 TWh in 2001

Electricity DistributionAt the beginning of July, Fortum harmonised the structure of its electricity distribution pric-ing in Finland and raised prices. Our distribu-

tion networks transmitted a total of 15.0 (15.0) TWh of electricity and our regional networks a total of 16.0 (14.0) TWh.

Electricity distribution in distribution networks, by area TWh 2001 2000

Sweden1) 7.7 8.1

Finland 4.4 4.0


Total 15.0 15.0

1) includes 50% of Birka Energi’s electricitydistribution, which was 7.7 TWh in 2001

Oil Refi ning and MarketingOur wholesale deliveries of petroleum products in Finland totalled 7.8 (7.8) million tonnes. Our market share continued to be about 75%. Sales of petroleum products outside Finland totalled 4.4 (4.9) million tonnes. Gasoline, the majority of which was low-sulphur, accounted for over half of our refi neries’ exports. Our most impor-tant export markets were Sweden, Germany and the USA.

Our retail sales of petroleum products in Finland were 3.8 (3.8) million tonnes. The mar-ket share varied by product from 30% to 46%.

Deliveries of petroleum products refi ned by Fortum, by product group 1,000 t 2001 2000

Gasoline 3,823 3,941

Diesel fuel 3,310 3,246

Aviation fuel 455 786

Light fuel oil 1,713 1,843

Heavy fuel oil 1,201 1,133

Others 1,641 1,360

Total 12,143 12,309

Oil and Gas UpstreamIn 2001, we produced an average of 40,200 (34,2000) oil-equivalent barrels of oil and gas a day – about 2.0 (1.7) million tonnes a year. Of this, slightly less than one fi fth was account-ed for by natural gas, its production following

0100999897

Operating profitEUR mill.

Return on capitalemployed%

0100999897

15

10

5

0100999897

15

10

5

Return on share-holders’ equity%

Investments EUR mill.

0100999897 000000999999989898979797

1,000

800

600

400

200

4,000

3,000

2,000

1,000


Financial Summary

the production start at the Åsgard fi eld amount-ing to 2.6 (1.0) million oil-equivalent barrels. During the year we decided to concentrate oil and gas production in Northern Europe and to divest our fi eld interests in Oman.

Financing and fi nancial positionDuring 2001 Fortum’s interest-bearing debt de-creased appreciably, thanks to the business’s strong cash fl ow and the disposal of fi xed assets. Net debt was EUR 3,674 (4,626) million and gearing 54% (73%) at the end of the year.

The company did not make any new signifi cant, long-term fi nancing arrangements. At the end of the year, the requisite fi nancing arrangements to realise the Birka Energi trans-action were agreed, and short-term syndicated loan agreements were made.

The Group’s liquidity continued to be good. At the end of the year, cash and marketable securities totalled EUR 602 million. In addition, we had a total of about EUR 1,150 million undrawn facilities. In 2001, our net fi nancing expenses totalled EUR 212 million.

Investments and divestmentsIn 2001, the Group invested EUR 713 (3,131) million. The most important investment was directed to increase production capacity of environmentally benign products, Citydiesel and base oils, at the Porvoo refi nery.

During the year we sold our interests in the power plants in the UK, Hungary and Thailand. We are also disposing of our remaining power plants in the UK and Ireland as well as our power business operations in Germany.

As part of our plan to optimise the power and heat production portfolio we sold our power plant in Joensuu and our interest in Etelä-Pohjanmaan Voima Oy.

We decided to focus our oil and gas pro-duction on Northern Europe. In September, we decided to participate in the fi rst phase of the development of the South Shapkino oil fi eld lo-cated in Northwest Russia and to divest our oil fi eld interests in Oman on the Arabian Peninsula.

Key fi gures by segment Net sales Operating profi t RONA EUR mill. EUR mill. % 1)

2001 2000 2001 2000 2001 2000Power, Heat and Gas 2,227 1,873 367 211 6.2 3.9Electricity Distribution 473 470 135 127 6.2 5.7Oil Refi ning and Marketing 7,223 7,807 242 386 13.7 22.4Oil and Gas Upstream 408 387 196 213 15.6 18.2Fortum Energy Solutions 603 887 13 -11 5.3 -6.4Other operations 95 94 -40 -22 Eliminations -619 -904 1 2 Group 10,410 10,614 914 906

1) RONA, % = Operating profi t / identifi able assets on average

Earnings per shareEUR

0100999897

Shareholders’ equityper shareEUR

0100999897

8

6

4

2

Interest-bearing net debtEUR mill.

0100999897

0100999897

100

80

60

40

20

Gearing%

5,000

4,000

3,000

2,000

1,000

0.6

0.4

0.2

Key sensitivities in 2002 Approximate effect on the Group’s operating profi t

Change EUR million

Market price of electricity,

EUR 1/MW +/- 201)

Brent crude oil price, USD 1/bbl +/- 25

Refi ning margin, USD 0.1/bbl +/- 10

US dollar, 10% +/- 15

The fi gures include hedging1) effect is not linear, in the Nordic countries, Birka 100%

11

In November, we signed an agreement with the City of Stockholm to acquire the City’s 50% interest in Birka Energi AB for a total price of some EUR 1.5 billion. In addition, we will assume approximately EUR 1.9 billion of net interest-bear-ing debt and minority interests. The City of Stock-holm will retain a share of Birka Energi’s district heating operations, Birka Värme, entitling to a 50% share in the fi nancial result of Birka Värme. The transaction was concluded in February 2002.

The pro forma information has been compiled as if the acquisition of the additional 50% interest in Birka Energi had taken place on 1 January 2001. The pro forma information has been given solely for illustrative purposes and due to its nature does not as such provide a true picture of the Group’s fi nancial position or results. The pro forma information is based on audited informa-tion on the Fortum Group and the Birka Energi Group and on unaudited adjustments relating directly to the transaction to be explained and to the adjustments of Birka Energi fi nancials to conform to Fortum’s accounting standards. The adjustments do not include potential synergy benefi ts, savings or expenses.

Pro forma income statement 1 Jan - 31 Dec 2001

(unaudited), EUR million

Fortum Birka Adjust- Fortum Group Energi ments 1) pro Group forma (50%) Net sales 10,410 747 -38 11,119Expenses -8,873 -484 67 -9,290Depreciation -623 -108 -22 -753Operating profi t 914 155 7 1 076Financial income and expenses -212 -88 -98 -398Profi t before taxes 702 67 -91 678Income taxes -160 -22 26 -156Minority interests -83 0 -11 -94Net profi t for the period 459 45 -76 428

Earnings per share, EUR 0.57 0.54

1) Effects of the Birka acquisition (amortisation of goodwill, interest expenses, minority interest in Birka Värme) and adjustments of Birka fi nancials to Fortum’s accounting standards.

Pro forma key fi gures 31 Dec 2001 (unaudited) Fortum Birka Adjust- Fortum Group Energi ments 2) pro Group forma (50%) Number of employees 13,425 1,790 15,215Interest-bearing net debt, EUR mill. 3,674 1,710 1,673 7,057Gearing, % 54 102

2) Effects of the Birka acquisition and adjustments of Birka fi nancials to Fortum’s accounting standards.

Pro forma balance sheet 31 Dec 2001 (unaudited), EUR million

Fortum Birka Adjust- Fortum Group Energi ments 3) pro Group forma (50%)

AssetsFixed assets and other long-term investments 11,328 3,558 536 15,422Current assets Inventories and receivables 2,364 282 -4 2,642 Cash and cash equivalents 602 29 108 739 Total 2,966 311 104 3,381Total 14,294 3,869 640 18,803

Shareholders’ equity and liabilitiesShareholders’ equity 5,485 1,290 -1,290 5,485Minority interests 1,270 53 108 1,431Interest-bearing liabilities 4,276 1,739 1,781 7,796Interest-free liabilities 3,263 787 41 4,091Total 14,294 3,869 640 18,803

3) Effects of the Birka acquisition (acquisition debt, good-will, minority interest in Birka Värme) and adjustments of Birka fi nancials to Fortum’s accounting standards.

Pro forma information by segment 1 Jan - 31 Dec 2001 (unaudited), EUR million

Net sales Fortum pro formaPower, Heat and Gas 2,677Electricity Distribution 696Oil Refi ning and Marketing 7,223Oil and Gas Upstream 408Fortum Energy Solutions 725Other operations 95Eliminations -705Net sales 11,119

Operating profi t Fortum pro formaPower, Heat and Gas 449Electricity Distribution 211Oil Refi ning and Marketing 242Oil and Gas Upstream 196Fortum Energy Solutions 17Other operations -40Eliminations 1Operating profi t 1,076

Fortum volume and capacity data 2001incl. Birka 100 % Nordic countries TotalPower generation capacity (MW) 11,551 12,625Electricity generationOutput (TWh) 52.1 57.7Electricity sales (TWh) 58,5 65.1Heat generation capacity (MW) 7,854 8,581District heat sales (TWh) 14.2 14.5Process steam sales (TWh) 6.0 7.5Distribution customers (‘000) 1,177 1,357Retail customers (‘000) 1,154 1,326

Acquisition of Birka Energi AB

Power, Heat and GasBirka EnergiElectricity Distribution


Fortum carries on its power, heat and gas operations mainly in the Nordic countries. The primary businesses are generation and sales of power, heat, cold energy and

process steam, electricity distribution as well as energy and portfolio management services. We also have holdings in natural gas companies.Measured by the volume of power generation and sales and the number of customers, we are the second largest company in the Nordic countries and a major electricity distributor in Finland and Sweden. We are the leading Nordic producers of heat in terms of the amount of energy sold and numbers of customers.The Nordic electricity market comprises more than 13 million consumers in Finland, Sweden, Norway and Denmark. Of these some 0.8 million are Fortum’s customers, including the subsidiaries and 50% of Birka Energi’s users. The number of our heat customers totals some 4,800 in the Nordic countries.

Market price of electricity nearly doubled in the Nordic countriesHydropower generation in the Nordic countries was 9% higher than average, although 22 TWh less than the previous year. The supply of hydropower in Norway decreased signifi cantly. Sweden, on the other hand, had fairly heavy rainfall throughout the year. At the end of 2001, the water reservoirs in the Nordic countries were slightly lower than average and there was somewhat less snow than usual. Approximately 55% of electricity in the region was generated by hydropower, some 24% by nuclear power, 20% by thermal power and 1% by wind power. The market price of electricity in the Nordic countries nearly doubled as a result of the decline in hydropower generation compared with the previous year and growth in consump-tion. The system price of the Nord Pool power exchange was on average EUR 23.2 (12.8) per MWh. The selling prices for end customers, too, increased in all the Nordic countries. The market price of electricity was nevertheless still appreciably below the costs for new production capacity.

Electricity transmission trends in EuropeGrid companies in Europe have discussed on a cross-border electricity transmission mecha-nism. Their organisation, ETSO (European Transmission Systems Operators) has proposed an arrangement whereby electricity vendors or providers would pay EUR 1/MWh for access to the entire European electricity market. The scheme is scheduled to be implemented during 2002. Cross-border tariffs are not in use in the Nordic countries. In order to increase free trading of electricity, additional cross-border transmission capacity is needed. Responsi-bility for constructing additional capacity lies with the grid companies.

Power and Heat

13

Power, Heat and Gas



Electricity sales, EUR mill. 1,269 1,170

Heat sales, EUR mill. 464 411


Identifi able assets, EUR mill. 5,873 6,050

RONA, % 6.2 3.9

Investments, EUR mill. 197 2,282


More hydropower and biofuels in power generationWe generated 41.0 (37.7) TWh of electricity, or 10% of the electricity consumed in the Nordic countries. The power generation in our wholly- and partly-owned power plants totalled 46.5 (42.0) TWh, including 50% of Birka Energi.

We have consistently aimed to make our production portfolio more environmentally benign through increased generation of hydropower and combined heat and power production based on biofuels.

Hydropower accounted for 17.0 (16.8 ) TWh, or about 37% (40%) and nuclear power some 20.7 (18.3) TWh, or 45% (43%) of our power generation. Other energy sources were natural gas, coal, biomass, peat, oil, and wind power.

During the year, we sold our shares in the Hungarian power company, Budapesti Erömü Rt, the British power company, South Humber Bank, and the Finnish company, Etelä-Pohjan-maan Voima Oy. We are also divesting our shares in power generation in the UK and our power business operations in Germany.

Electricity sales grew in the Nordic countriesIn the Nordic countries, our electricity sales to-talled 47.1 (45.3) TWh, and outside the Nordic countries 6.6 (6.1) TWh. Net sales of electricity in the Nordic countries were EUR 1,063 (967) million and EUR 206 (203) million in other countries. In the Nordic countries the average


• Fortum generated 10% of the electricity consumed in the Nordic countries• In our own electricity generation, hydropower accounted for 41% and nuclear power for 46% in the Nordic countries• The Swedish company, Birka Energi, in which we previously had a 50% interest, will be fully integrated with Fortum in 2002.

Net sales of electricity by areaEUR million

0100999897

Other countries Sweden and Norway Finland

Electricity sales by areaTWh

0100999897

20

40

60


1,500

1,200

900

600

300

price of electricity sold by us rose by 8%. 71% (77%) was sold to business customers and dis-tribution companies, 12% (13%) to households and electricity exchanges and temporary sales accounted for 17% (10%). The fi gures include the electricity sales of Fortum Markets. In addi-tion to electricity, we also provide our corporate customers and energy companies with portfolio management services.

Our power generation capacity totalled 10,223 MW, of which 9,149 MW, including 50% of Birka Energi’s capacity and our shares in partly-owned power plants, was in the Nordic countries.

Heat generation increasedAs a producer of heat we offer our customers district heat and process steam as well as cool-ing and cold energy and related energy services. Our market area includes the Nordic and Baltic countries, and Poland.

Our sales of heat in the Nordic countries totalled 15.6 (15.6) TWh, 5.8 (5.7) TWh of which was process steam for industry and 9.8 (9.9) TWh of which was district heat. Sales outside the Nordic countries totalled 1.7 TWh (0.7 TWh).

Our heat generation capacity totalled 6,162 MW, 5,435 MW of which was in the Nordic countries, including our shares in partly-owned power plants. Heat generation in our own and in partly-owned power plants in the Nordic countries totalled 15.3 (15.4) TWh. The fi gure includes 50% of Birka Energi’s heat generation, 4.5 (3.9) TWh. We aim to increase the use of biofuels, in line with our environmental targets.

Additional gas neededWe own shares in gas companies in Finland, Sweden and Estonia, and we are actively in-volved in expanding the natural gas market in Sweden. We have surveyed the scope of the natural gas market in Central Sweden and the feasibility of constructing a natural gas pipeline network in the area.

We increased our interest in Nova Naturgas AB (formerly Vattenfall Naturgas AB) from 10% to 20% and disposed of our 2% interest in the Latvian company, A/S Latvijas Gaze. For-tum and the Russian company, Gazprom, jointly own North Transgas Oy, which is developing a gas pipeline project from Russia via the Baltic to Western Europe. Plans are being made to expand the company’s ownership base. We carry on gas trading and sell gas to end-users mainly in the UK.

R&D focused on low-emission productionDuring the year, we invested EUR 8 (19) mil-lion in research and development of new prod-ucts. The main focus was on improving eco-nomic use of hydropower, enhancing nuclear power plant safety and increasing the use of local, low-emission fuels.

Electricity sales by areaTWh 2001 2000

Total for Nordic countries 47.1 45.3

Finland 27.6 28.4

Other Nordic countries 1) 19.5 16.9

Germany 3.6 3.9

UK and Ireland 2.8 1.9


Total 53.7 51.4

1) includes 50% of Birka Energi’s electricity sales

15

0100999897

20

40

60

Other sources Procurement from Russia Partly owned power plants Own power plants

Electricity procurement by procurement sourceTWh

Electricity procurement by energy typeTWh

0100999897

20

40

60

Other sources Procurement from Russia Thermal power Hydro-electric power Nuclear power


Electricity consumption in the Nordic countries

• The Nordic countries used 392 TWh of electricity, which was 2.0% more than the previous year and 8.6% more than fi ve years ago.

• In Finland the increase in electricity consumption was about 3.1% and in Sweden 2.5%. • The total volume of electricity used in Finland was 82 TWh, 53% of which was in industry.• In Sweden the fi gures were 150 TWh and 40%. • Hydropower accounted for 55% of the electricity generated in the Nordic countries.

Power and heat generation capacity as of 31 December 2001

(includes 50% of Birka Energi’s production capacity) Power generation capacity in the Nordic countries 9,149 MW Finland 5,230 MW Sweden 3,919 MW Own Other Own Other power shares power shares plants plants

Total 4,040 1,190 2,102 1,817Hydro-electric power 768 613 1,770 273Nuclear power 984 447 - 966Combined heat and power generation 743 130 260 2 Coal 247 - 65 - Natural gas 222 95 - - Peat 122 35 7 - Other 152 - 188 2Condensing power 1,532 - - 559 Coal 1,378 - - 64 Peat 154 - - - Others - - - 495Other 13 - 72 17

Electricity generation capacity in other countries totalled 1,074 MW; 578 MW of shares in Germany; 488 MW of shares in the UK and Ireland and 8 MW in the Baltic countries.

Heat generation capacity in the Nordic countries 5,435 MW Finland 3,016 MW Sweden 2,419 MW District Process District heat steam heat

Own power plants 1,691 1,325 2,314Combined heat and power generation 904 729 487 Coal 360 80 115 Natural gas 187 185 - Peat 271 184 18 Others 86 280 354 Other 787 596 1,827

Other shares - - 105

Heat generation capacity in other countries totalled 727 MW.

Electricity consumption in the Nordic countriesTWh

Net sales of heatEUR mill.

District heatand steam salesTWh

0100999897

100

200

300

400

500


0100999897

5

10

15

20

Steam District heat

0100999897

100

200

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500

Birka Energi owns and operates power plants, electricity, district heat and district cooling networks primarily in greater Stockholm and central Sweden.

It is Sweden’s second largest energy com-pany by number of end customers, the largest producer of district heat in the Nordic countries and the third largest generator of electricity in Sweden. Birka Energi is one of the largest pro-ducers of district heat in Europe, while in dis-trict cooling business it is the market leader.

Birka sold 22.9 (24.8) TWh of electricity in 2001. Households accounted for 21%, large customers 51% and electricity exchanges and temporary sales for 28% of electricity sales. It generated 22.3 (21.5) TWh of electricity in its wholly- and partly-owned power plants, and 11.2 (12.4) TWh of this generation was hy-dropower and 10.1 (8.2) TWh nuclear power.

Birka Energi

17

It used 4,803 (4,452) MW of electricity genera-tion capacity.

Birka Energi sold 9.3 (8.1) TWh of heat. Net sales of heat amounted to EUR 419 (378) mil-lion, and Birka’s heat generation capacity was 4,837 (4,816) MW.

Electricity distribution amounted to 32.3 (29.6) TWh, 15.4 (16.2) TWh of which was in distribution networks, and 16.9 (13.4) TWh in regional networks.

Birka Energi invested a gross total of EUR 338 (518).

The sales of fi xed assets totalled EUR 250 (58) million. Birka Energi sold its 49% interest in Katrineholms Energi AB and its wholly-owned company Katrineholms Ener giförsäljning AB.

In January 2002, it acquired a 49% interest in Hofors Energi AB. The transaction requires the approval of the municipality of Hofors, which owns the remaining 51% of the company. At the beginning of February the transaction whereby Birka Energi divested its shares in AB Avesta Energi entered into force.




Identifi able assets, EUR mil 7,504 7,590

Investments, EUR mill. 338 518


• Birka Energi produces and sells electricity, heat, district cooling, town gas, and provides electricity and heat distribution services to households, companies, energy companies and industry• Number of electricity customers 748,000• Number of electricity distribution customers 894,000• Number of heat customers 7,200



Net sales, EUR mill. 473 470



RONA, % 6.2 5.7


Average number of employees 954 976

Net sales for electricity distribution were EUR 473 (470) million, distribution network trans-mission accounting for EUR 376 (389) million and regional network transmission EUR 54 (55) million. The volume of distribution network transmission totalled 15.0 (15.0) TWh and the volume of regional network transmission 16.0 (14.0) TWh. The fi gures include 50% of Birka Energi’s electricity transmissions.

Fortum harmonised the structure of its elec-tricity distribution pricing and raised prices in Finland at the beginning of July 2001. Price increases for regional network transmission will become effective at the start of the next agree-ment period, as a rule as from January 1, 2002.

Changes ahead for regulatory regimes and legislationThe Energy Market Authority, which is the body responsible for supervising the electricity market in Finland, is preparing to include effi ciency when assessing whether the profi t made by distri-bution companies is reasonable or not. Effi ciency assessments are based on the DEA model, in which effi ciency is evaluated by the relative sta-tistical comparison of controllable costs, amount and quality of electricity distributed, and net-work length and number of customers. The En-ergy Market Authority measured the effi ciency of distribution companies for the fi rst time last year. According to the information from 1999, Fortum’s distribution effi ciency was 100%.

Sweden is preparing to go over to a theoreti-cal model for comparing optimum networks. The model assesses the prices of electricity distribu-tion in various operating environments and ob-jectively compares differences in effi ciency be-tween network companies. The proposed legisla-tion is due to come into force on 1 July 2002.

• Fortum harmonised its electricity distribution prices in Finland • 100% effi ciency in electricity distribution in Finland as measured by the Energy Market Authority• Autumn storms impeded electricity distribution

Electricity Distribution

01009998 01009998

4

8

12

16

Electricity distribution in distribution networksTWh

Other countries Finland Sweden

Norway’s energy authority determines the maximum allowed prices and monitors opera-tions. The regulatory regime, which is valid for fi ve years at a time, was reformed at the begin-ning of 2002. Under the reform, network compa-nies must increase the effi ciency of their opera-tions by 1.5% each year. In addition an annual requirement to increase effi ciency by 0 to 5.2% is determined on a company-specifi c basis. The highest allowed return on network capital is 20%.

In Germany, the lack of an authority respon-sible for regulating network operations coupled with inconsistent regulations and agreements hinder the operation of the market. Plans are being made in Estonia to introduce a system of regulation based on advance monitoring, such as that employed by Norway, which focuses on determining a reasonable level of profi t.

Legislation governing the electricity market also faces changes in Finland. Under the bill, the network operations of electricity companies should be spun off from the rest of their busi-ness by the beginning of 2004. Fortum has already done this.

Autumn storms impeded electricity distribution

Late autumn storms in Finland caused damage to the electricity distribution net-work. Costs amounting to over EUR 2 mil-lion were incurred by us as a result of storm damage. Wide-spread power cuts caused by the storms have sparked a debate on the readiness of power compa-nies and society to function appropriately in crisis situations. The Ministry of Trade and Industry has appointed an admin-istrator to appraise the effectiveness of the system for ensuring the provision and distribution of electricity in exceptional weather conditions. The work is expected to be completed by the end of April 2002.

Exceptionally wide-spread power cuts in Sweden have also given rise to a debate on the reliability of power supply. A cable fi re that broke out in Stockholm in March dark-ened part of the city for several days, the country was also plagued by autumn storms.

Number of electricity distribution customers, by area 2001 2000

Sweden1) 447,000 438,000

Finland 283,000 282,000

Germany 160,000 163,000

Estonia 20,000 19,000

Total 910,000 902,000

1) includes 50% of Birka Energi’s electricity distribution customers

Volume of distributed electricity, by area TWh 2001 2000

Sweden1) 7.7 8.1

Finland 4.4 4.0

Germany 2.7 2.7

Estonia 0.2 0.2

Total 15.0 15.0

1) includes 50% of Birka Energi’s electricity distribution

Fortum’s electricity distribution business

• Regional and distribution network transmission of electricity and network asset management - Distribution network, 0.4-20 kV cables and transformers - Regional network, 110 kV cables and transformers• In Finland, one player is allowed a maximum of 25% of the electricity distributed in the 0.4 kV distribution network across the country.

19

Oil

20

Fortum’s oil related operations include oil and gas exploration and production, the supply of raw materials for the refi neries, oil refi ning, storage, inland and maritime transportation, harbour services, product marketing and sales as well

as international oil and LPG trading as well as components and lubricants business. We are the market leader in the production of high-quality environmentally benign petroleum products in the Baltic Rim area. Petroleum products are also exported to countries outside Europe. Fortum’s two refi neries are located in Finland. The Porvoo refi nery is one of the most versatile and effi cient in Europe. Its main products are environmentally benign traffi c fuels. The Naantali refi nery increasingly produces special products, such as bitumens, solvents, small-engine gasoline, special gasoline for racing and almost sulphur-free light fuel oil.Fortum concentrates oil and gas production in Norway and Russia. Gas accounts for one fi fth of total production. Our own oil production accounts for about one fi fth of the needs of our own refi neries. Fortum sells petroleum products and related serv-ices to drivers through its own network of Neste service stations, unmanned A24 stations and diesel fuel out-lets. Fortum Markets sells fuel oil products to customers in industry and the heating and municipal sectors. Fortum has almost 500,000 service station customers with loyalty cards and some 300,000 other petroleum product customers.

Fluctuating raw material prices, moderate price development of petroleum productsDuring the year, prices for crude oil varied from more than USD 30 to USD 17 a barrel. The average price of Brent crude oil for the year was USD 24.4 (USD 28.5) a barrel. The average price per barrel of oil sold by Fortum was USD 23.7 (USD 27.6), and the price per oil-equivalent barrel of natural gas was USD 19.0 (USD 19.8).With the exception of the rise in gasoline prices in spring, the price development of petroleum products remained moderate and the stocks were high. The international refi ning margins (Brent complex) remained exceptionally low since summer. The aver-age refi ning margin for the year was USD 1.9 (3.4) a barrel.Our additional margin continued on an annual basis to be about USD 2 a barrel.Our share of wholesale petroleum products in Finland is about 75% and of retail sales some 40%. We are the market leader in lubricants for industry and traffi c in Finland, with a market share of 27%. The network of Neste service stations maintained its market leadership in the gasoline and diesel markets in Finland. In the next few years, the greatest potential for growth in the Baltic Rim area will be found in St Petersburg and Poland.

Oil Refining and MarketingOil and Gas Upstream


Oil Refining and Marketing


Demand for environmentally benign productsFortum’s share of the wholesale market for petroleum products in Finland is about 75%, 7.8 (7.8) million tonnes, and its share of the retail market is about 40%, 3.8 (3.8) million tonnes.

Exports from Finland of petroleum products refi ned by Fortum totalled 4.4 (4.9) million tonnes. Of this, over 2.2 million tonnes was motor gasoline, most of which was low-sulphur gasoline (sulphur content below 50 ppm). Over 300,000 tonnes of sulphur-free gasoline (sulphur content below 10 ppm) was exported to Germany. Gaso-line exports to the USA were halved at 430,000 tonnes as a result of improved European markets.

Exports of diesel fuel were entirely low- sulphur fuel. Over 700,000 tonnes of sulphur-free diesel was exported to Sweden and Germany. Exports of all grades of diesel grew by about 10%. Exports to Germany showed the highest growth.

Trading operations in both oil and LPG supported the Group’s oil and LPG supplies and overseas exports of petroleum products.

As in previous years, fl uctuations in the price of LPG on international markets were more pro-nounced than for the oil markets. Total sales of LPG were 315,000 (312,000) tonnes.

Neste service stations competitiveThe Neste network of service stations sold 715 (726) million litres of gasoline in Finland and the D network sold 835 (795) million litres of die-sel. In other countries in the Baltic region, Neste service stations sold 360 (281) million litres of gasoline and 72 (56) million litres of diesel, both showing an increase of 29% on the previous year. In the Baltic states and Poland, Neste service stations were converted to unmanned stations. In Estonia and Latvia,





RONA, % 13.7 22.4



• Production capacity for Citydiesel and lubricant base oils increased• Decision taken to commence trial production of ethanol-gasoline in the spring of 2002• Good year for Shipping

Sales of petroleum products in Finland

• Sales of petroleum products in Finland grew by 3.3% and totalled 9 million tonnes. • Gasoline sales grew by 1.5% and diesel sales by 2%. • Light fuel oil sales grew by 10%.• Sales of heavy fuel oil grew by 14%.

60

40

20

BE DI POK POR

Fortum’s share of retail sales of petroleum products in Finland%

BE=GasolineDI=Diesel fuelPOK=Light fuel oilPOR=Heavy fuel oil

the shops were leased to a non-Group company. In the Baltic states and St Petersburg, the

Futura brand of gasoline with additives is sold in addition to the local brands. In St Petersburg, Futura Citydiesel is also sold. In order to ensure quality, the products are stored in Fortum’s own terminals where the Futura additive is added.

Investment in refi ning increases environmentally benign products The costs of the spring maintenance shutdown at the Porvoo refi nery were EUR 34 million. There was a thorough maintenance programme which lasted for six weeks and was designed to increase the production capacity of environmen-tally benign products, and to increase the length of the next operating period to fi ve years.

The two largest investments at the Porvoo refi nery were to increase the production capac-ity of low-sulphur and sulphur-free traffi c fuels and lubricant base oil. In the autumn, the expan-sion in production of Citydiesel and base oil were completed, which resulted in an increase in production capacity for Citydiesel to 3.9 mil-lion tonnes a year and for base oil to 150,000 tonnes a year. An investment programme began at the Naantali refi nery which will enable it to produce sulphur-free gasoline.

Deliveries of petroleum products refi ned by Fortum, by product group1,000 t 2001 2000

Gasoline 3,823 3,941

Diesel fuel 3,310 3,246

Aviation fuel 455 786

Light fuel oil 1,713 1,843

Heavy fuel oil 1,201 1,133

Other 1,641 1,360

Total 12,143 12,309

We produce and sell sulphur-free products in countries where the tax regime promotes these products in the markets. The company is also ready to supply sulphur-free traffi c fuels in Finland.

We are also ready and keen to start to use ethanol in the manufacture of motor gasoline. We are planning to start pilot production of ethanol gasoline in the spring of 2002. The tax on the ethanol used in the test will be reduced by 30 cents per litre.

Oil spills at the refi neriesTwo oil spills occurred at the refi neries at the end of the year. In December at the Naantali refi nery, some 300 m3 of water containing oil leaked into the soil and then into the sea due to human error. The spill also spread outside the refi nery area.

At the turn of the year at the Porvoo re-fi nery, a pipeline between the harbour and the underground storage was frozen and some 500 m3 of diesel oil leaked into the terrain, and a part of it into the sea. Thanks to oil booms, the oil did not spread outside the dock basin.

In both cases, internal incident investigations were started immediately. VTT (the Technical Re-search Centre of Finland) and TUKES (the Safety Technology Authority) are also carrying out their investigations. In addition, the police is carrying out a criminal investigation into the Naantali case.

Tightening demands change the composition of traffi c fuels We produce motor fuel components for use in our own reformulated gasolines as well as for sale to other oil companies. MTBE (methyl tertiary butyl ether) and TAME (tertiary amyl methyl ether) are oxygenates which improve the combustion of gasoline and reduce harmful emissions. We also produce MTBE in Portugal and in joint venture plants in Canada and Saudi Arabia for sale on international markets. In 2001 we sold about 840,000 (810,000) tonnes of MTBE in different parts of the world, but mainly in the USA and Western Europe.

In California the use of MTBE will be banned by the end of 2002. The reasons are pri-

23

97 98 99 00 01


marily leakages from storage tanks which allows gasoline to leak into the soil and consequently threatens to pollute the groundwater. In Canada, the Edmonton plant, half owned by Fortum, is preparing to replace the production of MTBE with iso-octane in the summer of 2002.

In Europe, the EU has prepared a risk evalu-ation of the use of MTBE which confi rms that MTBE does not pose any health risk and that there are no grounds for prohibiting its use. The EU’s risk evaluation is being followed up by commissioning a risk reduction programme which will try to prevent gasoline leakages.

Quality base oils and lubricantsWe concentrate on the development and pro-duction of high quality base oils. In Belgium the company produces base oils such as poly-alphaolefi ns (PAO), which are the most im-portant components of synthetic lubricants. We currently have a market share of about 30% of the polyalphaolefi n market in Europe.

We also manufacture annually 150,000 tonnes of EHVI base oil (Enhanced High Viscosity Index), a product similar to synthetic oil, at the Porvoo refi nery. The product is used in the production of the company’s own lubri-cants and it is also sold on international markets as a raw material for lubricants.

The FIA (Flow Improver Agent) production plant was completed in the last quarter of the year and is based on our own research and development work. FIA reduces the friction of crude oil and petroleum products and this allows greater fl ow rates through pipes, which increases the capacity of pipelines by several tens of percentages. The closest markets are in Russia and the North Sea.

Good utilisation of shippingWe arrange the transport of crude oil and pe-troleum products in the Baltic, the North Sea and the North Atlantic. We only use double-hulled or double bottom tanker vessels for oil transport. In 2001 we transported a total of 37.0 (37.5) million tonnes in tankers. Over half of this amount was for non-Group customers.

The high freight level at the beginning of the year, good utilisation of vessels and a strong dollar all had a positive effect on profi tability. At the end of the year the freights and the price charged for vessels took a downturn as the de-mand for oil transport declined. The level of freights however was still satisfactory. No sig-nifi cant improvement is expected, however, as both this year and next shipyards will be deliv-ering large numbers of new tanker vessels.

Fortum has terminal operations in Finland and elsewhere in the Baltic area. The fi rm’s foreign terminals are in Tallinn, Riga and St Petersburg.

Deliveries of petroleum products refi ned by Fortum, by area1,000 t 2001 2000

Finland 7,484 7,243

Other Nordic countries 1,991 2,142

Baltic countries and Russia 45 153

USA and Canada 682 1,029

Other countries 1,941 1,562

Total 12,143 12,309

Fortum’s refi neries are located in Porvoo and Naantali

• The refi neries used 10.9 (10.7) million tonnes of crude oil and 0.9 (2.0) million tonnes of other feedstocks.• The refi ning capacity in Porvoo was 11 million tonnes and in Naantali 2.8 million tonnes.• 5.7 million tonnes of crude oil came from the North Sea and 5.3 million tonnes from Russia and other sources. • Most of the other feedstocks came from Russia.• 84% of raw material supplies were transported by sea and 16% were transported by rail.

Supply of crude oiland feedstocks to therefineries1,000 t

Denmark UK Norway CIS

15,000

10,000

5,000

Fortum’s inland based transport is handled by 155 private hauliers who operate their own trucks in the Neste livery.

Fortum continues to renew its tonnage Fortum is acquiring new vessels, selling its existing tonnage and restructuring its vessel ownership. The aim is to reduce the age of the fl eet so as to be better able to respond to the needs of the future. Last year agreements were made for the building of two 14,000 dwt and two 25,000 dwt product tankers which will be

Refi nery production1,000 t 2001 2000 1999 1998 1997

Liquefi ed petroleum gases 191 267 248 380 346

Gasoline 3,783 3,922 4,268 4,059 3,707

Diesel and light fuel oil 5,015 5,248 5,033 5,125 4,315

Heavy fuel oil and bitumen 1,549 1,647 1,544 1,579 1,394

Other products 808 1,095 1,290 1,390 1,075

Total output 11,346 12,178 12,383 12,533 10,837

Tanker fl eet at the end of 2001:

• 31 tanker vessels, of which - 21 product tankers - 8 crude carriers - 2 barge/tug combinations• 1 barge• 2 tugs

Seven vessels are wholly-owned and two part-owned by Fortum. The remaining 22 tanker vessels are chartered, 19 of them under long-term agreements. The total capacity of the fl eet is over 1 million dead weight tonnes.

25

delivered in the second half of 2003. At least two of the new tankers will be on long-term bareboat charter. We have also commissioned two ice-breaking crude oil tankers, 106,000 dwt, and two escort tugs, all of which will be com-pleted during 2002. We sold two tankers during the year, one of which was leased back.

Fortum’s oil technology throughout the worldWe use our patented NExTAME technology at the Porvoo refi nery in production of a low-emission etherifi ed gasoline component. More NExTAME and NExETHERS licenses have been sold to international oil companies as have licenses for the new ethanol-based ETBE pro-duction. Fortum’s NExOCTANE technology for the production of high-octane gasoline compo-nents has been developed commercially and the fi rst licensed plant is under construction. Com-mercialisation of the high conversion NExCC cracking technology is also progressing.

Neste service station network in 2001

• A total of approximately 1,000 sales outlets.• Finland has a total of 303 Neste service stations, of which 65 are branded “Quick Shop” stations and 172 are unmanned stations (A24).• There are 374 D-stations for heavy vehicles in Finland, 24 in Sweden and 2 in Russia.• There are 114 other sales points in Finland.• There are a total of 135 Neste service stations in other countries in the Baltic region.• There are almost 500,000 service station customers who have Neste cards.


Reserves and production increasedFortum has interests in three producing oil and gas fi elds on the Norwegian continental shelf: Brage, Heidrun and Åsgard. In northern Russia Fortum is participating in a development invest-ment in an oil fi eld, which aims to start produc-tion in 2003.

At the end of the year, Fortum’s commercial oil and gas reserves, excluding the reserves in Oman, totalled 289 million oil-equivalent bar-rels, approximately 38 million tonnes. In spite of the sale of the interest in Oman and produc-tion, net reserves increased by 10%. The growth is mainly attributable to the South Shapkino oil fi eld located in the Komi Republic in Russia. Our share of its reserves is 82 million barrels or some 11 million tonnes. Oil accounted for 184 million barrels (64%) of total reserves and natural gas for 15 billion cubic metres (36%). Some 70% of these reserves were in production.

Our production increased by 18% compared with the previous year. The increase was lower than expected due to technical problems in gas production at Åsgard. In 2001, we produced an average of 40,200 oil-equivalent barrels of oil and gas a day – approximately 2.0 million tonnes a year. Of this, almost one fi fth was accounted for by natural gas, its production amounting to 363 million cubic metres. We envisage that our production will exceed 50,000 barrels a day in 2004, after production has started in Russia.





RONA, % 15.6 18.2


Average number of employees 61 63

• We decided to focus our oil and gas production on Norway and Russia• Oil and gas reserves increased• International demand for crude oil decreased and the price fell

Oil and Gas Upstream

201510050095

0

0

0

0

Production forecast vintages (boe/day)

Oil Condensate (NGL) Gas

80,000

60,000

40,000

20,000

Problems in gas production at ÅsgardProduction at the fi elds in Norway increased less than expected, due to interruptions in gas pro-duction started at the Åsgard fi eld at the end of 2000. It was necessary to shut down the gas production platform for over four months in order to repair the defects found in the gas pipes of the fi eld. Production of gas condensates also decreased at the Åsgard fi eld, but oil production continued normally. Gas production at Åsgard was restarted at the turn of the year, and it is estimated that the fi eld will be in full production in the summer of 2002.

Oil production at Brage and Heidrun con-tinued as planned. In March, Fortum’s Norwe-gian subsidiary, Fortum Petroleum AS, acquired a 30% interest in three new concessions in the North Sea. The successful exploration pro-gramme of the previous year was followed up

Fortum’s fi eld stakes, commercial reserves and average production per day in 2001

Commercial reserves ProductionField Share, % Operator mill.boe boe/day

Norway 207 33,700

Brage 1) 12.3 Norsk Hydro 10 5,300

Heidrun 5.1 Statoil 48 10,800

Åsgard 7.0 Statoil 149 17,600

Oman 2) 35.0 Occidental 6,500

Russia 50.0 SeverTEK 82

Total 289 40,200

1) Includes the Sognefjord deposit, of which Fortum’s share is 13.2%2) Sold at the beginning of 2002

by success in the Norwegian Barents Sea in Oc-tober, where more oil reserves were confi rmed in the appraisal wells of the Goliath deposit. During production testing, 4,300 barrels of oil a day were extracted from the well. Fortum has a 15% interest in this fi eld, which will possibly be developed.

Divesting interests in OmanWe decided to relinquish oil production in the Middle East and divest our 35% interest in the Suneinah concession. The sales contract was signed in February 2002 and became effective on 31 December 2001. During the past ten years, Fortum has produced a total of 27 million barrels (3.6 million tonnes) of oil in Oman.

Production in Russia likely to start in 2003We decided to develop into production the South Shapkino oil fi eld located in the Timan-Pechora Basin in northwest Russia. The fi eld belongs to SeverTEK, a company half owned by Fortum and the Russian oil company Lukoil.

The field’s commercial oil reserves are over 20 million tonnes. Production at the field is planned to start in 2003. Fortum’s 50% share of the development investments in the field are some USD 180 million (EUR 205 million). The production potential of the field was con-firmed at the beginning of last year, when old appraisal wells were successfully opened for test production.

A new, almost one hundred kilometres long pipeline will be completed at the same time as production starts.

27




Operating profi t, EUR mill. 13 -11

Identifi able assets, EUR mill. 236 257

RONA, % 5.3 -6.4



During the year under review we set up a new business unit, Fortum Energy Solutions (FES). The new unit incorporates the former Service sector, Power Plant Engineering, international CHP projects as well as a major part of the R&D unit, which supports the Group’s power and heat business.

The added value brought by Fortum Energy Solutions emerges in reliable, environmentally benign energy production, high industrial proc-ess availability and economical maintenance.

The unit’s customers include power companies, developers of energy projects and energy-intensive as well as small and medium-scale industries.

Accomplished and new energy projectsIn July the 100 MW gas power plant at Laem Chabang in Thailand was completed and an opera-tion and maintenance agreement with the power

plant signed. In October a joint venture was estab-lished to construct a 40 MW industrial power plant at Liaohe in northern China. We also sold our minor-ity share in the Hin Krut power plant in Thailand.

Other major power plant projects were also completed during the year, including Grange-mouth in Scotland and Wacker in Germany. In addition, the Kozienice desulphurisation plant in Poland was handed over to the customer.

The most signifi cant of the new power plant projects was the commission for the 110 MW gas power plant at Kispest in Hungary. Con-struction of the plant will be carried out during the next two years.

BioMAC launchedThe Engineering unit shifted its strategy from large-scale power plant projects to medium-scale ones. The BioMAC power plant, based on the new strategy and the results of our own R&D, was launched on the market.

Maintenance means partnershipFortum is responsible for a total of 79 power and heating plants of varying sizes and types through-out Finland. The energy availability of the plants during operation was excellent, remaining on av-erage at 97.1% (97.0%) throughout the year.

Laser coating methods and technology have been improved and the market for these prod-ucts has expanded in industry and the power plant sector. The new facilities for the laser coating unit were taken into use in Kokkola.

Fortum and Rolls-Royce Power Ventures Limited signed an agreement on the operation and maintenance of the gas turbine plants at Bristol, Exeter and Croydon.

Other business units

Fortum Energy Solutions (FES)

• Service unit with versatile power generation know-how - operation and maintenance services for power plants and industry - technical and commercial analyses - construction management and design - turnkey deliveries of power plants and refurbishments• Market area: the Nordic countries, Europe and Asia • Special expertise in biomass utilisation

Operation-time energy availability of power plants %

Net sales by destination country EUR mill.

0100999897

96

94

98

100

Finland

Other Nordic countries

Other European countries

Asia

29 www.kotienergia.com

Other business units

Fortum Markets

Fortum Markets was formed in the early part of 2001 in accordance with the principles of Fortum’s customer strategy. Emphasis is placed on the importance of a customer-oriented approach, the ability to offer the customers the best products and services in the energy sector and efforts to broaden the clientele in the Nordic countries. The performance improve-ment programme implemented during the year had a positive effect on the unit’s results.

Restructuring underway in the Nordic countriesMany municipalities have divested or are in the process of divesting their electricity compa-nies, and it is estimated that a strong consolida-tion will happen in the Nordic countries as a re-sult of mergers and acquisitions. The number of Nordic companies selling electricity totals over 400, most of which are owned by municipalities.

Success in the Nordic energy retail market requires cost competitiveness, high-quality products and services as well as a broad enough customer base. Fortum aims to expand its energy retail operations mainly through acquisi-tions and by increasing its service offering with the help of partners.

Wide range of products and servicesA broader clientele enables the development of cost-effective systems for customer service, ordering and invoicing. By purchasing electricity, fuels and energy services from Fortum, custom-ers can benefi t from joint purchases from a single source in the form of a better price-quality ratio. Fortum Markets offers its customers a wide range of environmentally benign products.

Sales network, Contact Centre and online servicesAccount Managers are at the service of Fortum Markets’ business customers. The Contact

Centre offers its telephone services to households and small enterprises. Via the Internet’s online services, customers can place heating oil and electricity product orders, check their invoicing information and monitor their purchases.

Fortum Markets has set demanding targets for the quality of its customer service. Customer satisfaction as well as effi ciency and quality of operations are three areas to which special attention has been given during the past year. The quality of customer service is monitored and developed on a continuous basis with the help of customer feedback systems designed for the different sales channels.

The fi gures of Fortum Markets’ oil business as well as electricity business are included in the fi gures of the sectors Oil Refi ning and Marke-ting and Power, Heat and Gas, respectively.

Fortum Markets consists of three units

• Private CustomersSales and marketing of electricity and petroleum products and related services to households and farms. Total sales amounted to 4.0 TWh, 0.37 million tonnes.• Business CustomersElectricity and petroleum products and related services to the process industry, manufacturing industry as well as service and property companies. Total sales amounted to 14.3 TWh, 1.30 million tonnes.• Customer ServicesCustomer, invoicing and data management services to the above units and to our other business units in Fortum.

• Energy retailing• Continuation of the work begun in the Energy House• Electricity sales 18.3 TWh• Sales of petroleum products 1.67 million tonnes• Approximately 500,000 customers in Finland

A year of changes and development projectsOur human resources management in 2001 was characterised by a variety of innovations, changes and development projects. These in-cluded the Group’s new values, the new organi-sation which became effective in October, plan-ning of a Group-wide senior employee develop-ment system and at the same time employee cutbacks in various parts of the Group.

In 2001 we had on average 14,803 (16,220) employees. At the end of the year the number of employees totalled 13,425 (15,770), of whom 12,856 (14,844) had permanent contracts. Wom-en accounted for 23%, and the average age was approximately 44.

The number of employees decreased during the year by 2,345 people. Most of this cutback was due to the divestment of Transmission Engi-neering at the end of June. As a result of various measures to improve effi ciency, the number of employees was reduced by some 370 people.

Human resources development secures the futureWe further increased long-term and systematic development of human resources in the entire Group. Development and training are princi-pally the responsibility of the business units.

www.fortum.com/job opportunities

Number of employees by country as of 31 Dec. 2001 2000

Finland 7,922 9,360

Sweden 2,172 2,110

Germany 622 664

Estonia 488 575

Hungary 333 422

Norway 41 408

Russia 344 366

USA 284 288

UK 204 238

Other European countries 312 333

Other countries outside Europe 134 80

Total 12,856 14,844

• A year of changes: new values, a new organisation, personnel cutbacks• New employee development plans• Incentive and bonus systems• Programme to improve employee fi tness, competence and motivation

Human Resources

Levels ofeducation

Agedistribution

Compulsory (0-9 years)

Vocational (9-12 years)

College (12-15 years

University (15 years)

Doctorate

under 25 years

25-29 years

30-34 years

35-39 years

40-44 years

45-49 years

50-54 years

55-59 years

60- years

31

Fortum 01 n=4756Fortum 00 n=3645

0 10 20 30 40 50 60 70 80

Overall, investment in employee development during the year amounted to about EUR 8.8 mil-lion, and there was an average of 2.7 training days per person in 2001.

In order to improve supervisory and busi-ness skills and to strengthen the Group’s joint management practice, a development plan for management and experts was drawn up. The fi rst programmes, Fortum Challenger and Fortum Forward, will start up in 2002. Our aim is to engage about 500 employees in these programmes.

Fields ofeducation

Technical or natural sciences

Commercial or law

Social sciences or humanities

Logistics and transports

Other

Employee satisfaction measured in the spring

For the second year running we analysed employee satisfaction throughout the Group. Some 4,756 (3,645) employees replied to the survey, which was mainly conducted through the Intranet. The results were somewhat poorer than those for the previous year. The business units will carry out the needed improvement measures.

Wellbeing and equality received highest ratingsThe survey included ten main areas. The results for both 2001 and 2000 are presented in the figure, subject to availability of comparative data.

Strategy and goals

Personal and team goals

Personal assessment

Team assessment

Personal development

Development of operation and work community

Flow of information

Co-operation

Wellbeing and equality

Environment and safety

Total satisfaction

Incentive and bonus systems establish their placeOur achievement and performance reward systems have established their role as an impor-tant steering mechanism. In addition to these schemes, especially the production plants have their own bonus systems that are based on productivity.

The annual general meeting in the spring resolved on a new three-stage stock option scheme, the fi rst two stages of which were implemented during the year under review. In connection with this, we announced that the personnel fund could be expanded to include the business units and personnel outside Finland. Realisation of this plan entails amendments to the Personnel Fund Act. The statutory fi nancial statements on pages 41–42 give further informa-tion about the stock option scheme.

Employee fi tness for work programme enhances wellbeing Our programme TRIM to maintain and promote employee fi tness for work was put into actual prac-tice during the year. The aim of the programme is to improve fi tness, competence and motivation both in the business units and the work community in general. The units worked in collaboration in planning and implementing the programme.

New structure enabled task changesThe new corporate structure, which became effective in October, gave rise to a considerable number of changes in operating practices and tasks. For example, the responsibility for human resources was for the most part transferred from Group level to the business units and cor-porate services. Human resource managers were appointed to assist the line management so that training and other human resource issues could be incorporated as a natural part of operations. The corporate staff took responsibility for defi n-ing the basic lines of human resource policy.

The Group-wide internal labour market continued to be active, especially at the begin-ning of the year. We had a total of 250 vacan-cies, and some 320 people rotated to new jobs within the company.

The recruitment pages on our web site were an effi cient means of attracting employees during 2001, too. We received about 8,500 job applications through the Internet. Of these, 5,500 were summer applications. During the year we participated in seven national or regional recruitment events in Finland.

The entire Group began making preparations for the imminent retirement of the ‘baby boomer’ generation of employees, and the labour shortage that is likely to follow. We aim to further enhance our image as an employer and thereby ensure that we attract a professional and well-motivated labour force in the future, too.

Number of permanent employees by segment as of 31 Dec 2001

Power, Heat and Gas 2,719

Electricity Distribution 930

Oil Refi ning and Marketing 4,110

Oil and Gas Upstream 59

Fortum Energy Solutions 4,245

Other operation 793

Total 12,856

www.fortum.com/job opportunities

33 www.fortum.com/environment

Turning the climate change into business opportunitiesWe have closely monitored progress in the interna-tional climate process. Although the EU took action more rapidly than expected last year, we have suc-ceeded in anticipating the direction of development and have improved our know-how in new fi elds.

The most recent acquisitions secure our competitiveness as regards the climate issue. The acquisition of Birka Energi will increase our hydropower production capacity by some 80%. 60% of our electricity generation capacity would then be renewable and 80% carbon dioxide free. Approximately 10% of Birka’s hydropower is small-scale hydropower, for which there is demand on the green certifi cate markets.

We carried out investments to increase the use of biofuels at our power plants. During the year under review, a new biostation was built at the Jyväskylä power plant, making it possible to raise the proportion of biofuels to 30%. The use of sawdust as supplementary fuel was tested at the Naantali and Haapavesi power plants. Overall, the use of biofuels decreased somewhat compared with the previous year because of limited regional availability.

We have developed the use of biocompo-nents in traffi c fuels for a number of years now. In response to the EU’s Directive concerning biocomponents, we are producing a high octane bioethanol-containing gasoline on a trial basis during 2002 and 2003.

Fortum and Vapo are investigating the pro-duction of liquefi ed wood fuel that is suitable

for use in buildings and regional district heating centres. At the end of 2001 a liquefi ed wood fuel pilot plant based on a fast pyrolysis process was built at the Porvoo refi nery. The plant is the fi rst of its kind in the world. Liquefi ed wood fuel will make it possible to reduce carbon dioxide emissions arising from heating.

We have systematically developed our com-petence in implementing the Kyoto mechanisms. We have invested in the World Bank’s Prototype Carbon Fund, which realises projects to reduce greenhouse gas emissions in developing coun-tries and in countries with economies in transi-tion. The emission reductions achieved by the Carbon Fund are distributed to the contributors in relation to the amount of their investment.

In 2001 we participated actively in the Euro-pean wide green certifi cate trading pilot project (RECS). Our fi rst transactions in green certifi cate trading involved two Dutch companies. These provided us with useful experience in contract making and in auditing the production plants.

Continued high demand for envi-ronmentally benign traffi c fuels Our aim is to provide our customers with high-quality, environmentally benign products and services. With this aim, we have carried out con-scientious R&D into traffi c fuels for well over a decade. Today, we are a leading producer of environmentally benign traffi c fuels in Europe.

We estimate that the demand for high-quali-ty traffi c fuels will continue to remain high on account of, among other things, the new quality requirements that will come into force in the EU during 2005. Additional production capacity for cleaner traffi c fuels will be available in spring 2002 at the Naantali refi nery. This will further

• The share of renewable energy sources in power generation was 39% and 22% in heat production• Fortum maintained its strong position as a producer of clean traffi c fuels• Emissions increased due to growth in production• Green certifi cate trading with Dutch companies• Setback from oil spills

Environment, Health and Safety (EHS)

Share of renewablesin electricity generation%

Carbon dioxide emissions into the air1,000t/year

0100999897

10

20

30

40

50

0100999897

15,000

10,000

5,000

www.fortum.com/environment

improve our competitive position in Europe’s traffi c fuel markets.

More resources for improving safetyWe are making every effort to advance employee health and safety and to decrease environmental risks. We aim to reduce the number of safety incidents to 50% of the 1999 level by the end of 2003.

During the year, the lost workday injury fre-quency which resulted in more than one lost work-day was 12.3 injuries per million working hours, 7% more than in 2000. One of the company’s em-ployees was killed in a traffi c accident in Estonia and two of our contractor’s employees died in oc-cupational accidents in Thailand and in Germany.

Our lost workday injury frequency repre-sents a good Finnish average in terms of safety. We still have some way to go to match inter-

national high-performing companies, however. Greater effort will be needed to improve safety if we are to catch up and reach our own objec-tive. In 2001, the Corporate Executive Commit-tee approved our safety principles, which speci-fy the criteria and objectives of the high-level safety culture that the company aims to develop.

The total number of uncontained spills de-creased from 16 to 13. In December an oil spill occurred at both the Naantali and Porvoo refi n-eries. They are described on page 23.

Otherwise the operations of our production plants for the most part complied with valid envi-ronmental permits and other environmental regula-tions. Minor infringements of valid permits which occurred at seven units had no verifi ed impact on the environment or on human health, and no fi -nancial consequences resulted to the company. We were not involved in any lawsuits in which we would have to pay signifi cant compensation on the grounds of environmental, health or safety in-fringements. The police is carrying out a criminal investigation into the Naantali oil spill case.

Increases in production and emissionsOur carbon dioxide, nitrogen oxide and sulphur dioxide emissions increased clearly compared with the previous year. This was due, among other things, to the increased production with fossil fuels in connection with the start-up of the new power plants at Edenderry, Grangemouth, Burghausen and Laem Chabang.

Up-to-date environmental technology Our EHS investments amounted to some EUR 44 (47) million, and the operating expenses to-talled EUR 58 (55) million. These included costs related to our air pollution control, soil protec-tion, effl uent treatment, waste management and fi re abatement, process and occupational safety activities and occupational health care. The ex-penses arising from process modifi cations and new production processes are also included in en-vironmental costs to the extent as they reduce the environmental load from production or enhance the environmental properties of our products.

Our most signifi cant investments during the year included the new production line for clean-er traffi c fuels at the Naantali refi nery, the lique-fi ed wood fuel pilot plant at the Porvoo refi nery,

Climate issue shapes business environment

Great strides were made in the International Climate Convention during the year. The EU took an assertive role and started the preparations for the ratifi cation of the Kyoto Protocol in summer 2002, even though the United States has so far opted to stay out of the process. In October the EU launched a broad climate package which included, besides a proposal to ratify the Kyoto Protocol, a communication on the European Climate Change Programme and a proposal for a Directive on emissions trading. Implementation of the programme will require a number of Directives on the generation and use of energy in the next few years. The measures prescribed in the programme will make it possible to achieve about half of the EU’s carbon dioxide emissions reduction target. The aim is to achieve the other half by means of the Europe-wide emissions trading procedure. The Government published Finland’s climate strategy in the spring. It is based on the programmes for renewable energy and energy saving drafted in 1999 and 2000 and on electricity generation solutions. Measures proposed include higher taxation, increasing specifi c subsidies and, if necessary, prohibiting coal-based power produc-tion. The Finnish Parliament will continue to debate the climate strategy after a decision on whether to construct a new nuclear power plant has been made.

Sulphur dioxide emissions into the airtonnes/year

Nitrogen oxide emissions into the airtonnes/year

Lost work-day injuriesinjuries/million hours worked

0100999897

01009998

5

10

15

20

0100999897

30,000

20,000

10,000

36,000

24,000

12,000

35

the biostation at the Jyväskylä power plant and the improvement of the integrity of the oil stor-age tank containment areas at the refi neries.

During the year under review, the European Council and Parliament came to a compromise over the Directives on emissions from large combustion plants (LCP) and national emission ceilings (NEC). These set emission limits for sulphur dioxide and nitrogen oxides for new and existing power plants as well as national emission ceilings for acidifying emissions and volatile organic compounds.

Environmental protection at our production plants mainly complies with the requirements of the best available techniques, and implementa-tion of the Directives is not expected to entail any signifi cant investment needs.

In 2001, we paid a total of EUR 217 (218) million in environment-based taxes and fees in Finland. The most signifi cant items were ad-ditional tax on traffi c fuels and taxes on fuels used in heat generation. The tax basis for 2002 remains unchanged.

EHS risks and liabilities under controlWe have evaluated the environmental liabilities related to our past actions and made the nec-essary provisions, in line with our accounting principles, for any future remedial cost relating to environmental damage. The management is not aware of any cases that would have a mate-rial impact on our fi nancial position.

We systematically evaluate EHS risks in connection with acquisitions and disposals. To avoid any unexpected claims for damages, envi-ronmental liabilities are defi ned in detail in our contracts. The environmental risk position of our acquisitions during the year has no signifi -cant impact on company economy.

Sudden and unexpected environmental dam-ages occurring anywhere in the world are cov-ered by the Fortum Group’s liability insurance. The insurance limit is some EUR 530 million (USD 500 million) for each insured event within one insurance period. In the USA and Canada, the insurance includes limitations regarding the duration of the damage and reporting the event.

In accordance with the Finnish Nuclear En-ergy Act, we made provisions for future costs which will arise from nuclear waste manage-ment. By the end of 2001, the cost of handling and disposing of accumulated nuclear waste and the decommissioning of the Loviisa power plant was estimated at EUR 515 million. Our fund holding in the State Nuclear Waste Management Fund covers the costs in full.

The liability relating to a nuclear accident is laid down in Finnish legislation. We have covered this liability by statutory insurance amounting to EUR 300 million. Fortum’s sub-sidiaries own minority interests in Swedish and German nuclear power companies. The nuclear power companies in question have organised their nuclear responsibilities in accordance with the national regulations.

A separate report “Fortum in Society” will be published in spring 2002

Importance of renewable energy production and biofuels increases

In 2001 the Directive on the promotion of electricity from renewable energy sources came into force in the EU. The aim is to increase the average propor-tion of renewable energy sources used in energy production in the EU from the current level of 14% to 22% by 2010. Finland aims to increase the share of renewable energy sources in energy production to 31.5%, which on an annual level means a produc-tion increase of over 10 TWh compared with 1997. In order to encourage the use of renewable resources, a number of countries are planning to set obligations for operators on the electricity market according to which a certain proportion of the electricity purchased must originate from renewable energy sources. The operator can meet the obligation either by producing electricity them-selves from renewable resources of energy or by purchasing green certifi cates from other operators. A two-year RECS project in which a system for renewable energy certifi cate trading is being devel-oped and pilot trading started is currently underway in Europe. The project is supported by the EU. At the end of the year the EU Commission also proposed a Directive on biofuels for transport. It sets targets according to which the proportion of biocomponents in gasoline and diesel oil should be gradually increased to 5.75% by 2010.

EHSinvestmentsEUR mill. /year

EHSoperating costsEUR mill./year

50

40

30

20

10

0100999897

0100999897

80

60

40

20


Fortum complies with the Finnish Companies Act and the guidelines on the administration of publicly listed companies, issued by the Central Chamber of Commerce of Finland and the Con-federation of Finnish Industry and Employers. We also observe the Guidelines for Insiders is-sued by the Helsinki Exchanges. In addition to a register of persons obliged to declare insider holdings, as required under the Securities Mar-kets Act, we maintain a more extensive insider list, which is kept in the insider register system of the Finnish Central Securities Depository.

The decision-making bodies running the Group’s administration and operations are the annual general meeting, Supervisory Board, Board of Directors and the President and Chief Executive Offi cer.

Annual General MeetingIn addition to its other duties, the annual general meeting approves the parent company and con-solidated income statement and balance sheet annually, resolves on the amount of dividends to be paid and appoints the members of the Supervisory Board. The annual general meeting is held once a year, at the latest in June.

Supervisory BoardThe members of the Supervisory Board are elected at the annual general meeting for a one-year term of offi ce. The Supervisory Board comprises a minimum of ten and a maximum of 20 members; the current number is 17. The Supervisory Board meetings, which as a rule convene every other month, are also attended by four employee representatives, who are not members of the Supervisory Board.

The Supervisory Board supervises the admin-istration of the company and discusses any issues that may involve a substantial downsizing or ex-pansion of the business; confi rms the number of the members of the Board of Directors and selects the Chairman and other members of the Board of Directors, and submits its statement on the fi nancial statements and auditors’ report to the annual general meeting. The Supervisory Board appoints, on the recommendation of the Board of Directors, the President and CEO of the company.

Members of the Supervisory Board:Ben Zyskowicz, born 1954, Member of Parliament (MP), Deputy Chairman of the Supervisory Board Henrik Aminoff, born 1945, BSc (Econ),

Assistant Director, M-real, Paper GroupTuija Brax, born 1965, MPKaarina Dromberg, born 1942, MPKlaus Hellberg, born 1945, MPRakel Hiltunen, born 1940, MPHarri Holkeri, born 1937, Counsellor of StateJorma Huuhtanen, born 1945, Director GeneralMikko Immonen, born 1950, MPKyösti Karjula, born 1952, MPTanja Karpela, born 1970, MPJouko K. Leskinen, born 1943, Master of LawsLeena Luhtanen, born 1941, MPPertti Mäki-Hakola, born 1951, MPMatti Vanhanen, born 1955, MPSirkka Vilkamo, born 1951, Industrial Counsellor, Ministry of Trade and Industry Employee representatives:Satu Laiterä, managers and professionalsTapio Lamminen, workersPentti Paajanen, workersEdvard Trebs, clerical personnel

Board of DirectorsThe Board of Directors comprises fi ve to seven members, who are appointed for a calendar year. The current number is seven. In 2001, the Board of Directors met nine times and held three telephone conferences.

The Board of Directors is responsible for the administration of the Group and for ensur-ing that the business complies with the relevant rules and regulations, Fortum’s Articles of Asso-ciation, and the instructions given by the annual general meeting and the Supervisory Board.

The Board of Directors is responsible for the company’s strategic development and for supervis-ing and steering the business. It also decides on the Group’s key operating principles; confi rms the company’s annual operating plan, annual fi nancial statements and interim reports; decides on major investments; confi rms the company’s ethical val-ues and operating principles and oversees their implementation; appoints deputies and the immedi-ate subordinates to the President and CEO, and decides on their remuneration; confi rms the Corpo-rate Executive Committee and the Group’s organi-sational and operating structure at top management level; and defi nes the company’s dividend policy.

The Executive Chairman of the Board, together with the President and CEO, prepares matters relating to the Group’s strategy, devel-opment of corporate structure, and co-operation projects for the Board of Directors.

Corporate Governance

37

The Board of Directors has appointed an audit committee, and a nomination and compensation committee. The members of these committees are all non-executives. The audit committee monitors the company’s fi nancial statements, interim re-ports and auditors’ reports, and monitors and as-sesses the Fortum-wide internal supervision sys-tem and internal auditing. The audit committee is chaired by Birgitta Kantola and the members are Hans von Uthmann and Erkki Virtanen.

The nomination and compensation commit-tee discusses, assesses and makes proposals on the Group’s, and its management’s pay struc-tures and bonus and incentive systems, and contributes to nomination issues. The nomina-tion and compensation committee is chaired by Heikki Pentti, and the members are Lasse Kurkilahti and Antti Lagerroos.

President and CEOThe role of the President and CEO is to manage the Group’s business and administration in ac-cordance with the Finnish Companies Act and the instructions of the Board of Directors. The President and CEO is supported by the Cor-porate Executive Committee. Mikael Lilius has been President and CEO since 2000.

Salary, remuneration and shareholdingsThe salary and remuneration of members of the Supervisory Board and the Board of Direc-tors for 2001 totalled EUR 541 thousand. The Executive Chairman of the Board and the Presi-dent and CEO are paid performance bonuses, in addition to their salary and fringe benefi ts, the size of which is dependent on the Group’s fi nancial performance and success in reaching its goals. The bonus may not exceed 30% of the person’s annual salary.

The Chairman of the Board’s salary, fringe benefi ts and performance bonus totalled EUR 368 thousand in 2001. The corresponding total remu-neration paid to the President and CEO was EUR 623 thousand. The retirement age of the President and CEO is 60, and the pension paid is 60% of the remuneration. In case Fortum decides to give notice to the President and CEO, he is entitled to a total compensation equalling 24 months’ salary.

Fortum Corporation’s shares and stock op-tions held by the members of the Supervisory Board, the Board of Directors, the President and CEO and the Group Excecutive Vice President on 31 December 2001 are listed in the adjacent table.

Shares and stock options as of 31 December 2001 Stock options 1 No. of shares 1999 2001

Members of the Supervisory Board

Matti Vanhanen 351

Members of the Board of Directors

Heikki Pentti 546

Matti Vuoria 8,370 350,000 400,000

Mikael Lilius, President and CEO 350,000 400,000

Eero Aittola, Group

Executive Vice President 170 250,000 100,000

1) Number of shares included in stock options

AuditingThe internal auditing function, which reports to the audit committee appointed by the Board of Directors and the President and CEO, assures that we operate in compliance with the relevant rules and regulations as well as with the Group’s operating principles. The function also ensures that the company’s risk management is arranged in the best possible manner.

The companies of the Group are audited by SVH PricewaterhouseCoopers Oy; Pekka Kaasalainen, authorised public accountant, has the principal responsibility.

Bonus and incentive systemsThe management and stock option scheme, and a bond loan with warrants targeted at personnel, support the achievement of our long-term goals. More details are in the offi cial fi nancial state-ments on pages 41–42.

An annual bonus and incentive system, de-signed to support the achievement of our short-term goals is employed throughout the Group. The criteria used in determining the size of the bonus are confi rmed annually by the Board of Directors on the recommendation of the nomina-tion and compensation committee. The criteria on the basis of which the employees’ progress in reaching their personal goals are recognised, are mutually agreed by the employee and his/her superior in an annual performance and appraisal discussion. The criteria are approved by the per-son to whom the superior reports.

The Fortum Personnel Fund (for Finnish employees only) has operated since 2000. The criteria for the fund’s annual bonuses are deter-mined by the Board of Directors.


Matti Vuoria, Master of Laws, born 1951, Executive Chairman. Mr Vuoria is a director of a number of compa-nies, including Danisco A/S and The European Renaissance Fund Limited, and is Chairman of Solidium Oy.

Heikki Pentti, BSc (Econ), born 1946, Deputy Chairman. Mr Pentti is Chairman of Lemminkäinen Oyj and a director of Pohjola Group Insurance Corporation and Myllykoski Corporation.

Birgitta Kantola, Master of Laws, born 1948, Group Executive Vice President. In the period from 1995 to 2000 Ms Kantola was Vice President and CFO of International Finance Corporation (Washington D.C.). Today she is a director of Vasakronan AB and Akademiska Hus AB.

Olli-Pekka Kallasvuo, Master of Laws, born 1953. Mr Kallasvuo is Executive Vice President, Chief Financial Offi cer and a member of Nokia Group Executive Board. He is Chair-man of a number of companies, including Sampo plc, Nextrom Holding S.A. (Switzer-land), Nokian Tyres plc and F-Secure Oyj. During the period from 1991 to 1996 he was a Board member and Chairman of Helsinki Stock Exchange Ltd.

Erkki Virtanen, MSc (Social Sciences), born 1950, Secretary General of the Ministry of Trade and Industry. Mr Virtanen is Deputy Chairman of Sitra, Finnish National Fund for Research and Development.

For the year 2002, the following persons were elected to the Board of Directors: Matti Vuoria (Chairman), Heikki Pentti (Deputy Chairman), Birgitta Kantola, Lasse Kurkilahti, Antti Lagerroos, Hans von Uthmann and Erkki Virtanen.

From left to right: Olli-Pekka Kallasvuo, Matti Vuoria

From left to right: Heikki Pentti, Birgitta Kantola, Erkki Virtanen

Board of Directors on 31 December 2001

39

Corporate Executive Committee

Mikael Lilius, BSc (Econ), born 1949, President and Chief Executive Offi cer, Chairman of the Corporate Executive Committee.Employed by Fortum since 2000.

Eero Aittola, BSc (Econ), born 1942, Group Executive Vice President. Employed by Fortum since 1990.

Mikael Frisk, MSc (Econ), born 1961, Senior Vice President, Corporate Human Resources.Employed by Fortum since 2001.

Kari Huopalahti, MSc (Eng), born 1947, Senior Vice President, Corporate Development.Employed by Fortum since 1973.

Tapio Kuula, MSc (Eng), MSc (Econ), born 1957, President, Power and Heat sector.Employed by Fortum since 1996.

Juha Laaksonen, BSc (Econ), born 1952, Chief Financial Offi cer. Employed by Fortum since 1979.

Veli-Matti Ropponen, MSc (Eng), BSc (Econ), born 1949, President, Oil sector.Employed by Fortum since 1973.

Carola Teir-Lehtinen, MSc (Chem.), born 1952, Senior Vice President, Corporate Communications.Employed by Fortum since 1986.

Harri Pynnä, Master of Laws, born 1956, Senior Vice President, Corporate Legal Affairs, Secretary to the Corporate Executive Committee.Employed by Fortum since 1998. Other Management 15 February 2002

Power and Heat sectorPresident Tapio KuulaGeneration, Pekka PäätiläinenPower Portfolio Management and Trading, Timo Karttinen

Heat, Risto RiekkoDistribution, Tapio LehtisaloGas, Bo LindforsBirka Energi, Tomas Bruce

Oil sectorPresident Veli-Matti RopponenOil Exploration and Production, Hans Kristian RødOil Refi ning, Risto RinneOil Retail, Matti PeitsoShipping, Jukka Laaksovirta

Fortum Energy SolutionsPresident Eero Auranne Fortum MarketsPresident Kari Huopalahti Corporate StaffHuman Resources, Mikael Frisk Corporate Strategy Development, Kari HuopalahtiLegal Affairs, Harri PynnäInternal Audit, Kaj LindströmFinance, Juha LaaksonenCommunications, Carola Teir-LehtinenEnvironment, Health and Safety, Arja Koski

From left to right: Carola Teir-Lehtinen, Kari Huopalahti, Mikael Lilius, Tapio Kuula, Juha Laaksonen, Veli-Matti Ropponen, Mikael Frisk, Harri Pynnä and Eero Aittola

Group Management


Alfred Berg Finland Oytel. int. +358 9 228 321Kluuvikatu 3FIN-00100 HelsinkiFinland

D. Carnegie AB Finland Branchtel. int. +358 9 6187 1200POB 727FIN-00131 HelsinkiFinland

Conventum Securites Limitedtel. int. +358 9 231 231POB 359FIN-00101 HelsinkiFinland

Credit Agricole Indosuez Cheuvreux Nordic ABtel. int. +358 9 696 991POB 688FIN-00101 Helsinki

Credit Lyonnais Securitiestel. int. +44 20 7588 4000Broadwalk House5 Appold StreetLondon EC2A 2DAU.K.

Dresdner Kleinwort Wasserstein Securitiestel. int. +44 171 623 8000POB 560London EC3P 3DBU.K.

Deutsche Bank AG, Helsinki Branchtel. int. +358 9 2525 25POB 650FIN-00101 HelsinkiFinland

Enskilda Securities ABtel. int. +358 9 6162 8900POB 599FIN-00101 HelsinkiFinland

Evli Bank Plctel. int. +358 9 476 690POB 1081FIN-00101 HelsinkiFinland

Handelsbanken Securitiestel. int. +358 10 44 411POB 315FIN-00131 HelsinkiFinland

Lehman Brotherstel. int. +44 20 7601 0011One BroadgateLondon EC2M 7HAU.K.

Mandatum Stockbrokers Ltdtel. int. +358 9 651 086POB 66FIN-00131 HelsinkiFinland

Morgan Stanley Dean Witter & Cotel. int. +44 171 425 800025 Cabot Square, Canary WharfLondon E14 4QAU.K.

Nordea Securities Oyjtel. int. +358 9 12341Fabianinkatu 29 BFIN-00100 Helsinki Finland

Opstock Investment Banking tel. int. +358 9 40 465POB 362FIN-00101 HelsinkiFinland

Schroder Salomon Smith Barneytel. int. +44 20 7986 4000Citigroup Centre33 Canada SquareLondon E14 5LBU.K.

UBS Warburg tel. int. +44 171 567 80002 Finsbury AvenueLondon EC2M 2PGU.K.

Banks and Brokers following Fortum

Barrel (bbl)A crude oil barrel; 159 litres

1 MWmegawatt = 1,000 kilowatts (kW) = 1,000,000 watts (W)Unit of power. The power of a normal incandescent lamp is 25 to 100 W.

1 TWhterawatt-hour = 1,000 gigawatt-hours (GWh) = 1,000,000 mega-watt-hours (MWh) = 1,000,000,000 kilowatt-hours (kWh)Unit of energy. An incandescent lamp of 100 watts consumes 0.1 kWh of energy an hour.

BioMACA biomass-fi red power plant based on Fortum’s own boiler technology (MAC = Modular Advanced Combustion).

EHVI Enhanced High Viscosity Index is a term describing lube oil quality. The chemical structure of the oil may vary from one production process to another. EHVI quality base oils are used in the manufacture of high-quality lubricants for industry and traffi c.

FIA Flow Improver Agent. A product that reduces fl ow resistance in pipelines and this allows greater fl ow rates through pipes.

NExCC A cracking technology developed by Fortum. Cracking breaks long carbon molecules so that lighter oil fractions can be refi ned from heavier oil fractions.

NExTAME and NExETHERS Technologies developed by Fortum which can be utilised in the cost-effective manufacture of gasoline ethers that are used to improve the combustion.

NExOCTANE A technology developed by Fortum for the manufacture of iso-octane used as high quality gasoline component substituting MTBE.

PAO Polyalphaolefi n. A synthetic base oil used in the manufacture of high-quality lubricants.

Glossary

Number of shares traded, mill. shares(daily average)

01001 4 7 10 1 4 7 10

Distribution of ownership as of 31 December 2001

Quotations, EUR (monthly average)

Finnish State 70.7% Financial and insurance institutions 3.7% Households 5.7% Other Finnish investors 9.7% International investors 10.2%

www.fortum.com/ investors

Annual General MeetingThe Annual General Meeting of Fortum Corporation will be held on Tuesday,

26 March 2002, at 4.00 pm, at Finlandia Hall, Mannerheimintie 13 e, Helsinki.

Registrations for the AGM are requested by 4.00 pm, on 19 March 2002. Registra-

tions can be done by telephone on +358 10 452 9460, by fax on +358 10 262 2727,

by e-mail to [email protected] or by mail to Fortum

Corporation, Marjatta Rantiala, POB 1, FIN-00048 FORTUM. Written registrations

must arrive before the end of the registration period. Any powers of attorney must be

delivered in connection with the registration.

Payment of dividendsThe Board of Directors will propose to the AGM that a dividend of EUR 0.26 per share

be paid for the fi nancial period 2001. The record date for dividend payment is 3 April,

and the suggested dividend payment date is 10 April 2002.

Interim ReportsInterim Report 1 January - 31 March 2002 will be published on 25 April 2002

Interim Report 1 January - 30 June 2002 will be published on 25 July 2002

Interim Report 1 January - 30 September 2002 will be published on 24 October 2002

The Annual Report and Interim Reports are available in Finnish, Swedish and

English and can also be read on Fortum’s Internet home page at www.fortum.fi in

Finnish, and at www.fortum.com in English and Swedish.

Contact informationFinancial information can be obtained from Fortum Corporation, Corporate

Communications/Heidi Jokinen, POB 1, FIN-00048 FORTUM,

tel. int. +358 10 45 24861, fax +358 10 45 24798, e-mail [email protected].

The IR contact is Raija Norppa-Rahkola, Vice President, Investor Relations,

tel. int. +358 10 45 24135, fax +358 10 45 24327, e-mail raija.norppa-

[email protected].

Investor Information

Share information for 2001

• Highest share price EUR 5.70• Lowest share price EUR 4.05• Average share price EUR 4.79• Total number of shares traded, 134.5 million• Market capitalisation EUR 4,017 million (31 Dec 2001)

Largest shareholders as of 31 December 2001

• Finnish State• Social Insurance Institution• Ilmarinen Mutual Pension Insurance Company• Varma-Sampo Mutual Pension Insurance Company• The town of Kurikka

Additional information about shares and shareholders is available on pages 39-42 of the fi nancial statements.

1.2

0.8

0.4

01001 3 5 7 9 11 1 3 5 7 9 11

2

4

6

Annual R

eport 2001

Fortum

Keilaniemi, Espoo POB 1 FIN-00048 FORTUM, Finlandtel. int. +358 10 4511fax +358 10 45 24447www.fortum.com

Domicile Espoo VAT NO F1463611-4

Annual Report 2001

Financial Statements 2001

Board of Directors’ report 1

Consolidated income statement 8

Consolidated balance sheet 9

Consolidated cash flow statement 10

Notes to the financial statements 11

Group shares and holdings 27

Key financial indicators 1997–2001 31

Formulae for key financial indicators 34

Parent company income statement, balance sheet

and cash flow statement 35

Shares and shareholders 39

Proposal for the distribution of retained earnings 43

Auditors’ report 44

Statement by the Supervisory Board 45

Contents

1

Board of Directors´ report

The year 2001 proved to be an eventful year for Fortum. During the year, the company managed to achieve significant progress in several areas. In line with its strategy Fortum focused and increased the efficiency of the operations. Net debt was reduced considerably, resulting in a stronger balance sheet. The most sig-nificant development was the agreement to acquire the remaining half of Birka Energi AB.

Net sales of electricity business up, oil downGroup net sales remained on the level of the previous year, and totalled EUR 10,410 million (EUR 10,614 million). The electricity business’s net sales were up, thanks to increased electricity sales and the rise in the average price of electricity. The decrease in the net sales of the oil business was mainly attributable to the fall in the price of crude oil and petro-leum products compared with the previ-ous year.

Net sales by segmentEUR mill. 2001 2000 Change %

Power, Heat and Gas 2,227 1,873 19Electricity Distribution 473 470 1Oil Refining and Marketing 7,223 7,807 – 7Oil and Gas Upstream 408 387 5Fortum Energy Solutions 603 887 – 32Other operations 95 94 1Internal invoicing – 619 – 904 Group 10,410 10,614 – 2

Slightly improved operating profitFortum Group’s operating profit was EUR 914 million (EUR 906 million). The rise in the price of electricity in 2001 together with increased production appreciably improved the results for power generation and sales. The decline in the crude oil price and the pipeline repair work at the Åsgard gas field diminished the results for Oil and GasUpstream. The results for Oil Refining and Marketing were substantially reduced on account of the weakening international refining margin, inventory losses and the maintenance shutdown at the Porvoo refinery. The result of the oil business declined substantially in the last quarter.

The pro-forma result for Fortum Energy Solutions (FES) was considerably higher than the previous year. It was weakened by the provisions made in connection with the sale of Transmission Engineer-ing. On the other hand, the sale of the operation and maintenance contract relating to the sale of the Humber power plant improved the results of FES.

The trend in Fortum Markets was also positive. This was attributable in par-ticular to the performance improvement programme implemented in the unit. The unit’s figures are included in the figures for Power, Heat and Gas and Oil Refining and Marketing.

Operating profit by segmentEUR mill. 2001 2000 Change %

Power, Heat and Gas 367 211 74Electricity Distribution 135 127 6Oil Refining and Marketing 242 386 – 37Oil and Gas Upstream 196 213 – 8Fortum Energy Solutions 13 – 11 218Other operations – 40 – 22 – 82Eliminations 1 2 Group 914 906 1

2 www.fortum.com/investors

Inventory losses due to the decrease in crude oil prices and the depreciation of the coal stock totalled EUR 81 million (gains EUR 24 million). Inventory losses totalled EUR 65 million in the last quarter.

Operating profit includes gains on the sale of fixed assets and shareholdings, at EUR 149 million (EUR 119 million). Cor-respondingly, non-recurring write-downs and provisions totalled EUR 57 million (EUR 66 million).

Birka Energi has been consolidated by using the proportionate method on the basis of 50% ownership. The Birka Energi Group accounted for EUR 189 million (EUR 175 million) of Fortum’s operating profit. The other associated companies have been consolidated by the equity method. Fortum’s share of the results of these companies, excluding Birka Energi, totalled EUR 36 million (EUR 46 million).

Profit before extraordinary items was EUR 702 million (EUR 633 million).

Profit before taxes totalled EUR 702 million (EUR 623 million).

The minority interests accounted for EUR 83 million (EUR 46 million) of the result for the period. The minority share was comprised almost entirely of the share belonging to owners of preference shares issued by Fortum Capital Ltd in 2000.

Net profit for the period was EUR 459 million (EUR 423 million) and earnings per share were EUR 0.57 (EUR 0.55). Return on capital employed was 8.7% (9.4%) and return on shareholders’ equity was 8.3% (8.6%).

Group net fi nancing expenses were EUR 212 million (EUR 273 million). The fi gure for 2000 included non-recurring expenses of EUR 33 million, resulting from fi nancing arrangements relating to the acquisition of power plant assets in Sweden. Taxes for the fi nancial year totalled EUR 160 million (EUR 154 million).

Considerable fluctuation in market prices, increase in own power generation

Power, Heat and GasThe market price of electricity in the Nordic countries almost doubled com-pared with the previous year as a result of the decline in hydropower generation and growth in consumption. The average system price of the Nord Pool power exchange was EUR 23.2 (EUR 12.8) per MWh. The selling prices for end cus-tomers, too, increased in all the Nordic countries. Electricity consumption in the Nordic countries increased by a prelimi-nary estimate of 2% from the previous year and totalled 392 TWh (384 TWh).

Fortum´s electricity generation capac-ity in the Nordic countries was 9,149 MW (9,243 MW) at the end of the year, while the total capacity was 10,223 MW (10,163 MW). The electricity sales of the company in the Nordic countries in 2001 amounted to 47.1 TWh (45.3 TWh). Sales in Finland amounted to 27.6 TWh (28.4 TWh) and in the other Nordic coun-tries 19.5 TWh (16.9 TWh), including 50% of Birka Energi’s electricity sales. Outside the Nordic countries, the sales totalled 6.6 TWh (6.1 TWh). The average price of the electricity sold by Fortum in the Nordic countries increased by 8% from the previous year.

Fortum´s sales of heat in the Nordic countries were on last year’s level, 15.6 TWh (15.6 TWh).

Electricity DistributionAt the beginning of July, Fortum harmo-nised the structure of its electricity dis-tribution pricing in Finland and raised prices. Fortum´s distribution networks transmitted a total of 15.0 TWh (15.0 TWh) of electricity and its regional networks a total of 16.0 TWh (14.0 TWh).

3

Oil Refining and MarketingThe international refining margins decreased in comparison with the previ-ous year and were exceptionally low at the end of the year, on average USD 1 a barrel in the period from July to Decem-ber. The Brent Complex margin averaged USD 1.9 a barrel in 2001, compared with USD 3.4 a barrel in 2000. Fortum´s pre-mium margin in 2001 continued on an annual basis to be about USD 2 a barrel higher than the Brent Complex reference.

The price development of crude oil was steady at the beginning of the year, but towards the end of 2001 prices began to fall and at year-end were about USD 20. As a result inventory losses rose to EUR 79 million.

There was a six-week maintenance shutdown at the Porvoo refinery in the spring during which capacity extension for the production of Citydiesel and base oil was taken into use. The shutdown caused a production loss of about one million tonnes, meaning a loss of profit margin estimated at EUR 40 million. The next planned maintenance shutdown will be at the Naantali refinery in 2005.

The average shipping freight level was good. Successful timing in chartering and the high fleet utilisation rate ensured good profitability. During the year four new tankers were ordered and two sold.

Fortum´s wholesale deliveries of petroleum products in Finland totalled 7.8 million tonnes (7.8 million tonnes). The market share continued to be about 75%. Wholesale deliveries of petro-leum products outside Finland totalled 4.4 million tonnes (4.9 million tonnes). Gasoline, the majority of which was low-sulphur, accounted for over half of our refineries’ exports. The most important export markets were Sweden, Germany and the USA.

Fortum´s retail and direct sales of petroleum products in Finland were 3.8 million tonnes (3.8 million tonnes). The market share varied by product from 30% to 46%.

Oil and Gas UpstreamDuring 2001, crude oil prices varied from more than USD 30 to USD 17 a barrel. The average price of North Sea Brent light crude oil was USD 24.4 (USD 28.5) a barrel. The average price of oil sold by Fortum was USD 23.7 (USD 27.6) a barrel. The price per oil-equivalent barrel of natural gas was USD 19.2 (USD 19.8).

In 2001, Fortum produced an average of 40,200 oil-equivalent barrels of oil and gas a day (34,200 in 2000) – about 2.0 million tonnes (1.7 million tonnes) a year. Of this, slightly less than one fifth was accounted for by natural gas, its pro-duction following the production start at the Åsgard field amounting to 2.6 million (1.0 million) oil-equivalent barrels. During the year the company decided to con-centrate oil and gas production in North-ern Europe and to divest its field interests in Oman.

Fortum Energy Solutions (FES)Fortum operated a total of 79 power and heating plants of different sizes and types throughout Finland. Their availability continued to be very high. A number of major power plant projects were completed during the year, and new maintenance contracts were signed. The BioMAC power plant, which is the result of Fortum´s own R&D, was launched on the market.

The Fortum Markets unit, formed in the spring, focuses on retailing of electricity and heating oil. There are some 500,000 business and private customers in Fin-land. Fortum Markets aims to expand


operations elsewhere in the Nordic coun-tries. Last year particular attention was devoted to customer satisfaction, effi-ciency and quality of operations. The fig-ures for Fortum Markets are included in the figures for Power, Heat and Gas and Oil Refining and Marketing.

Net debt decreased significantlyDuring 2001 Fortum’s interest-bearing debt decreased appreciably, thanks to the strong cash flow from operations and the disposal of fixed assets. Net debt was EUR 3,674 million (EUR 4,626 mil-lion) and gearing 54% (73%) at the end of the year.

The company did not make any new significant, long-term financing arrange-ments. At the end of the year, the financ-ing arrangements to realise the Birka Energi transaction were agreed, and short-term syndicated loan agreements were made. The Group’s liquidity contin-ued to be good. At the end of the year, cash and marketable securities totalled EUR 602 million. In addition, Fortum had a total of about EUR 1,150 million undrawn syndicated loans. In 2001, the net financing expenses totalled EUR 212 million. Additional production capacity through investmentsIn 2001, the Group invested EUR 713 mil-lion (EUR 3,131 million). The most impor-tant investment was directed to increase production capacity of environmentally benign products, Citydiesel and base oil, at the Porvoo refinery.

Acquisition of Birka Energi ABIn November, Fortum signed an agree-ment with the City of Stockholm to acquire the City’s 50% interest in Birka Energi AB for a total price of some

EUR 1.5 billion. In addition, Fortum will assume approximately EUR 1.9 billion of net interest-bearing debt and minority interests. The City of Stockholm will retain a share of Birka Energi’s district heating operations, Birka Värme, entitling to a 50% share in the financial result of Birka Värme.

The deal will strengthen Fortum´s posi-tion as one of the leading actors on the Nordic electricity market and be an important strategic step when expanding the power and heat business. The trans-action was approved by the Stockholm City Council on 17 December 2001 and by the European Commission on 10 Janu-ary 2002. The aim is to finalise the trans-action during the first quarter in 2002.

Progress in focusing and improving operationsIn line with its strategy Fortum is focusing electricity generation in its core market, the Nordic countries, and elsewhere in the Baltic Rim. During the year the com-pany sold its share in the South Humber Bank power plant in the UK, its share in Budapesti Erömü Rt in Hungary and its interest in the Thai company, Union Power Development Company (UPDC), which is responsible for the Hin Krut coal-fired power plant project. Fortum is also disposing of its power plants in the UK and Ireland as well as the power busi-ness operations in Germany.

As part of the plan to optimise the power and heat production portfolio Fortum sold the power plant in Joensuu and the interest in Etelä-Pohjanmaan Voima Oy.

Fortum decided to focus the oil and gas production on Northern Europe. In September, the company decided to par-ticipate in the first phase of the develop-ment of the South Shapkino oil field

5

located in Northwest Russia and to divest the oil field interests in Oman on the Ara-bian Peninsula.

Two new units to develop customer-ships were established during the spring. All the core know-how relating to power plant engineering, construction, opera-tion and maintenance as well as to modi-fications was combined under Fortum Energy Solutions (FES). The entire share capital of IVO Transmission Engineering Oy was divested in June. Another new unit was Fortum Markets, which focuses on base products and services in elec-tricity and heating oil retail sales.

The Group-wide performance improve-ment programme was continued through-out the year.

More investments for renewable energy research The Group used EUR 53 (58) million, or 0.5% (0.5%) of net sales in research and development. The existing R&D portfolio continued to be focused in line with the new Group strategy. Some of the projects and the R&D personnel were transferred to the appropriate business units. Partic ular attention was paid to strengthening R&D activities in renewable energy-related solutions and services.

Continued environmental effortsThe acquisition of Birka Energi provided Fortum with abundant renewable and carbon dioxide-free power generation capacity. The company carried out investments to increase the use of bio-fuels at the Jyväskylä power plant, for instance. A liquefied wood fuel pilot plant, which is due to start up in spring 2002, was built at the Porvoo refinery. Construction of a new production line at the Naantali refinery was started, too.It will manufacture sulphur-free motor

fuels that meet the future quality require-ments of the EU. Fortum is participating actively in the European project to develop trading in green certificates.

All the above-mentioned projects are improving the ability to meet the increas-ing number of environmental challenges, especially in terms of the climate issue and energy sources. During the year, the EU completed a number of directives and proposals for directives which aim to reduce carbon dioxide emissions and increase the use of renewable energy sources.

At the end of the year two oil spillsoccurred at the refineries. One of the spills also had impacts outside the refinery. The refineries are currently thoroughly investigating the course of the events and the requisite corrective actions have been taken to prevent simi-lar incidents from occurring in the future.

Treasury stock soldFortum Corporation’s wholly-owned subsidiary, Fortum Power and Heat Oy, disposed of its entire holding of 51,037,520 shares in Fortum Corporation on 4 December 2001. The shares repre-sent 6.04% of the company’s shares outstanding, and have a nominal value of EUR 173,527,568. The shares were placed at EUR 4.65 per share, raising total proceeds of EUR 237 million. Sales price less expenses and taxes have been entered as an increase in consoli-dated shareholders’ equity. The shares came into Fortum Power and Heat Oy’s possession in September 2000 in the merger with Länsivoima Oyj. The transaction increased the free float and liquidity. It also broadened Fortum´s international shareholder base and strengthened the balance sheet.


Stock option programmes for key employeesThe 2001 annual general meeting approved a stock option programme for key employees. The programme com-prises 24 million option rights, which entitle to subscribe for a maximum of 24 million Fortum Corporation shares if the subscription conditions are met. The proportion of shares subscribed under stock option schemes is a maximum of 2.8% of the company’s present share capital and voting rights. The subscrip-tion period will be staggered, beginning on 15 October 2005, 15 January 2006 and 15 April 2006, and ending under all stock option rights on 1 May 2007. As a result of subscriptions made as part of this stock option programme, Fortum’s share capital may rise, in total, by a maximum of EUR 81.6 million. At the end of 2001, the stock option programme covered 358 persons with a total of 13,287,500 option rights.

The Board of Directors decided in the spring 2001 to close the stock option scheme started in 1999. On account of this, unsubscribed option rights will no longer be distributed to the personnel.

Human ResourcesIn 2001, Fortum Group employed an average of 14,803 (16,220) people, and at the end of the year 13,425 people (15,770). The sale of Transmission Engi-neering accounted for most of the decrease. On account of measures to improve performance carried out in various parts of the Group, the number of permanently employed per-sonnel decreased by some 370. At the end of the year, Fortum Corporation employed 340 people (377).

Changes in Group managementThe new corporate structure became effective at the beginning of October, replacing the 26 performance units with 12 business units. The larger entities pro-vide the units with the critical mass to better allow the achievement of their tar-gets and more independent operations. The new business structure complies with Fortum’s strategic direction.

On 4 April 2001, Kari Laitinen and Ben Zyskowicz were elected by the annual general meeting as Chairman and Deputy Chairman of the Supervisory Board respectively. The following new members were appointed: Jorma Huuhtanen, Rakel Hiltunen and Pertti Mäki-Hakola. Ben Zyskowicz has chaired the Supervisory Board since February 2002, following the death of Kari Laitinen.

In 2001, the members of Fortum’s Board of Directors were Matti Vuoria (Chairman), L.J. Jouhki (Deputy Chair-man) until 4 July 2001, Heikki Pentti (Deputy Chairman from 31 August 2001), Olli-Pekka Kallasvuo, Birgitta Kantola and Erkki Virtanen.

Matti Vuoria (Chairman), Heikki Pentti (Deputy Chairman) Birgitta Kantola, Lasse Kurkilahti, Antti Lagerroos, Hans von Uthmann and Erkki Virtanen were elected members of the Board of Directors for 2002.

Eero Aittola, Group Executive Vice President, retired on 1 January 2002.

The companies of the Group were audited by SVH PricewaterhouseCoopers Oy, with Pekka Kaasalainen, authorised public accountant, having the principal responsibility.

7

Events after the review periodIn January Fortum agreed on the sale of the tanker Mastera to the Middle East for EUR 40 million. In February the com-pany agreed on the sales of the oil and gas production operations in Oman to two Japanese companies. The sales pro-ceeds of this transaction are expected to exceed EUR 180 million.

Short-term outlookKey market drivers which influence Fortum´s performance are the market price of electricity, the crude oil price, the international oil refining margin, and the exchange rates of the US dollar and the Swedish krona. It is extremely difficult to forecast how these driving factors will develop in the year ahead.

Over the next couple of years, elec-tricity consumption in the Nordic coun-tries is estimated to increase by about 1–2% each year. In 2001, the average spot price for electricity almost doubled compared with 2000. In January 2002, the price was on average the same as for the comparable period last year.

As a result of the closing of the Birka Energi AB deal, Fortum´s electricity gen-eration capacity will increase by 20%, heat generation capacity by 40% and the number of electricity distribution custom-ers by 50%. The transaction is expected to have a positive effect on the net result from 2003 onwards and to benefit Fortum by EUR 60 million a year as of 2004.

At the beginning of 2002 the price of crude oil seems to have settled at USD 20 a barrel. The oil producers’ decision at the turn of the year to cut output supported prices, but poor demand and increased stocks are pushing prices

down. It is estimated that gas production at the Åsgard field in 2002 will be approximately one third lower than usual on account of pipeline repairs to be con-tinued in the spring. The disposal of the field shares in Oman is expected to be finalised during the spring.

Although no general increase in the consumption of petroleum products in Fortum’s core markets is anticipated, there is a clear rise in the demand for low-sulphur and sulphur-free fuels. For several years, the international Brent Complex refining margin has averaged USD 1.5 to USD 2 a barrel. At the end of 2001, the international margin fell close to zero and there was no change for the better in January 2002. It is estimated that Fortum’s premium margin will remain strong. Thanks to the investments last year, the proportion of high-quality petro-leum products in the refineries’ product yield increased, which further strength-ened our premium margin.


Consolidated income statement

M€ Note 2001 2000

Net sales 3, 4 10,410 10,614Share of profits (losses) of associated companies 5 36 46Other operating income 6 203 140Depreciation, amortisation and write- downs 7 – 623 – 571Other operating expenses 8 – 9,112 – 9,323Operating profit 914 906

Financial income and expenses 9 – 212 – 273Profit before extraordinary items 702 633

Extraordinary items 10 – – 10Profit before taxes 702 623

Income taxes 11, 22 – 160 – 154Minority interests – 83 – 46Net profit for the period 459 423

9

Consolidated balance sheet

M€ Note 2001 2000

ASSETSFixed assets and other long-term investments 12,13,14Intangible assets 382 425Tangible assets 9,439 9,593Other long-term investments 1,507 1,694 11,328 11,712Current assetsInventories 15 598 746Long-term receivables 16 99 97Short-term receivables 17 1,667 1,836Investments 19 156 15Cash and cash equivalents 446 422 2,966 3,116 14,294 14,828

SHAREHOLDERS’ EQUITY AND LIABILITIESShareholders’ equity 20 Share capital 2,875 2,875Share premium 61 30Reserve fund 46 –Retained earnings 2,044 1,694Net profit for the period 459 423 5,485 5,022

Minority interests 1,270 1,281 Provisions for liabilities and charges 21 144 197 Deferred tax liabilities 22 1,122 1,177

Liabilities 23, 24 Long-term liabilitiesInterest-bearing 3,099 4,017Interest-free 417 446 3,516 4,463Short-term liabilitiesInterest-bearing 1,177 1,046Interest-free 1,580 1,642 2,757 2,688 14,294 14,828


Consolidated cash flow statement

M€ 2001 2000Cash flows from operating activitiesProfit before extraordinary items 702 633Depreciation, amortisation and write-downs 623 571Other non-cash income and expenses – 91 – 2Financial income and expenses 212 273Divesting activities, net – 122 – 60Operating profit before change in working capital 1,324 1,415

Change in working capital Decrease (+)/increase (–) in interest-free trade and other short– term receivables – 31 – 928 Decrease (+)/increase (–) in inventories 117 – 86 Decrease (–)/increase (+) in interest-free liabilities 5 531 Change in working capital 91 – 483Change in interest-bearing working capital, decrease (+)/increase (–) – 3 – 12Cash generated from operations 1,412 920

Interest and other financial expenses paid, net – 197 – 312Dividends received 34 22Income taxes paid – 178 – 144Realised foreign exchange gains and losses 74 – 62 – 267 – 496

Net cash from operating activities 1,145 424

Cash flows from investing activitiesCapital expenditures – 657 – 716Proceeds from sales of fixed assets 135 235Acquisition of shares in subsidiaries net of cash acquired – 5 – 842Investments in shares in associated companies – 42 – 166Investments in other shares – 4 – 18Proceeds from sales of shares in subsidiaries net of cash disposed 16 159Proceeds from sales of shares in associated companies 261 86Proceeds from sales of other shares 26 38Change in other investments, increase (–), decrease (+) – 31 115Cash flow from investing activities – 301 – 1,109

Cash flow before financing activities 844 – 685

Cash flows from financing activitiesSales of own shares 223 –Payment of (–)/proceeds from (+) short-term borrowings – 598 500Proceeds from long-term liabilities 140 438Payments of long-term liabilities – 185 – 1,604Dividends paid – 183 – 141Capital investment by minority shareholders, increase (+), decrease (–) – 1,158Other financial activities – 76 – 6Cash flow from financing activities – 679 345

Net increase (+)/decrease (–) in cash and marketable securities 165 – 340

Cash and marketable securities at the beginning of the period 437 775Foreign exchange adjustment – 2 437 777Cash and marketable securities at the end of the period 602 437Net increase (+)/decrease (–) in cash and marketable securities 165 – 340

11

Notes to the financial statements

1. Accounting policies and principlesFortum’s financial statements are prepared in accordance with Finnish GAAP.

ConsolidationThe consolidated financial statements include the parent company Fortum Corporation and all those companies in which Fortum Corporation holds, directly or indirectly, more than 50% of the voting rights except for certain housing companies which are immaterial for giving a true and fair view of the results and financial position of the Group.

Fortum Corporation’s consolidated financial statements have been prepared using the pooling-of-interests method. The acquisition cost of Fortum Power and Heat and Fortum Oil and Gas has been eliminated against the share capital of the companies. The difference has been entered as a decrease in shareholders’ equity.

The financial statements of Fortum Power and Heat and Fortum Oil and Gas have been consolidated according to the acquisition-cost method. In eliminating mutual share-holdings, the balance sheet entry for the acquisition costs of the subsidiaries’ shares has been reduced by the value of Fortum’s holding in the company at the acquisition date including the value of provisions less deferred tax liabili-ties. The difference between the acquisition cost of sub-sidiaries and shareholders’ equity at the time of acquisi-tion, arising from the elimination of mutual shareholdings, has been allocated to fixed assets at the time of acquisition to the extent that their fair value at the time exceeded the book value.

The rest of the difference is entered as goodwill on con-solidation. Items allocated to the fixed assets are depreci-ated according to the depreciation plan of the underlying asset. Goodwill on consolidation is amortised over its esti-mated lifetime subject to a maximum of 20 years.

Subsidiaries acquired during the year are consolidated from the date of acquisition. Likewise, the subsidiaries divested during the accounting period are included in the consolidated accounts until the date of divestment.

Intergroup transactions, receivables, liabilities, unreal-ised profits and internal profit sharing have been elimi-nated. Minority interests have been reported separately in the income statement and the balance sheet.

Associated companies material to Fortum, in which the Group holds between 20% and 50% of the voting rights, have been consolidated using the equity method. Accord-ingly, the company’s share of the net profit of an associated company and its share of other changes in the equity, less

depreciation on goodwill on consolidation, is entered as income in the income statement and added to the value of the shares in the consolidated balance sheet. Dividends received are deducted from the balance sheet value of the shares. The Birka Energi Group has a very significant impact on Fortum’s financial position, and its income state-ment and balance sheet and notes to the financial state-ments have been consolidated into the Group financial statements using the proportionate method.

Net salesNet sales include sales revenues from actual operations and exchange rate differences on trade receivables, less discounts, indirect taxes such as value added tax and excise tax payable by the manufacturer and statutory stockpiling fees.

Trading sales include the value of physical deliveries and the net result of derivative contracts. The net sales of the gas trading operation is the net figure from buying and selling.

Other operating income Other operating income includes gains on the sales of fixed assets, as well as all other operating income not related to the sales of products or services, such as rents.

Foreign currency itemsReceivables and liabilities denominated in foreign curren-cies have been valued using the exchange rate at the date of the transaction. Receivables and liabilities denominated in foreign currencies outstanding on the balance sheet date have been valued using the exchange rate quoted on the balance sheet date. Exchange rate differences have been entered in the income statement. Net conversion dif-ferences relating to financing have been entered under financial income or expenses.

The income statements of companies outside Finland have been translated into euros using an annual average exchange rate based on month-end exchange rates, while the balance sheets have been translated employing the exchange rate on the balance sheet date. The resulting translation differences have been netted against the trans-lation differences arising from the hedging contracts pro-tecting asset values and entered under non-restricted equity. The fixed assets of subsidiaries operating in high-inflation countries such as Russia and the Baltic countries are re-valued to the exchange rate on the effective date of the acquisition.


Derivative instrumentsFortum enters into derivative financial instruments such as forward contracts, options, and currency swaps to hedge its exposure to fluctuations in foreign exchange rates. Derivatives used to hedge loans or receivables in the bal-ance sheet and any other derivative contracts included in the net position are valued employing the exchange rate quoted on the balance sheet date, and the foreign exchange gains or losses are recognised in the income statement. Loans and related currency swaps have been netted in the balance sheet. Foreign exchange gains or losses on derivatives that hedge future cash flow are rec-ognised once the underlying income or expense occurs. The interest element relating to derivatives is accrued as interest income or expense over the period to maturity.

Interest income or expense for derivatives used to manage exposure to interest rate risk is accrued over the period to maturity and is recognised as an adjustment to the interest income or expense of the underlying liability or transaction. Losses on interest rate derivatives used for purposes other than hedging are valued at the interest rate on the balance sheet date and entered as an expense in the income statement.

Fortum also trades in commodity derivatives. The con-tracts are marked to market at the balance sheet date and any losses on contracts entered into for other than hedging purposes are entered as an expense in the income state-ment. Gains or losses on derivatives used for hedging purposes are recognised as income or expense once the underlying income or expense occurs.

The difference between the premium paid or received on financial and commodity options and the closing price of the option on the balance sheet date is entered in the income statement. However, revenue is only recognised up to the amount of expense charged for the underlying trans-action. Option premiums are treated as advances paid or received until the options mature or lapse.

Sales and procurement contractsPossible losses on sales and procurement contracts have been estimated and expensed when the purchase price is higher than the estimated sales price.

Fixed assets and depreciationThe balance sheet value of fixed assets consists of histori-cal costs less depreciation and other deductions, plus any revaluations permitted by local regulations. Some foreign

companies have also included interest charges incurred during construction in addition to the historical costs of the fixed assets.

Fixed assets are depreciated using straight-line depre-ciation based on the expected useful life of the asset. Depreciation on oil, gas and peat reserves and production equipment is calculated using the unit-of-production method.

The depreciation is based on the following expected useful lives: Hydro-electric power plant buildings, structures and machinery 40–50 years Other power plant buildings, structures and machinery 25 years Substation buildings, structures and machinery 30–40 years Transmission lines 15–40 years Other buildings and structures 20–40 years Other tangible assets 20–40 years Other machinery and equipment 5–20 years Other long-term investments 5–10 years

Oil and gas reserves are valued by field on the basis of future cash flows in line with the practice of the country concerned. If required, the balance sheet value of capital-ised expenditure is reduced by additional depreciation.

Finance leasesIn the consolidated financial statements, properties acquired through finance-lease agreements have been recognised as assets and interest bearing liabilities in the balance sheet. Rental expenses are entered as deprecia-tion on fixed assets and interest expenses on debt in the consolidated income statement. InvestmentsInterest-bearing net debt of acquired companies has been included in investments.

InventoriesInventories have been valued on the FIFO principle at the lower of direct acquisition cost or market value, taking into account the impact of possible hedging operations. In the case of some foreign subsidiaries, the acquistion cost also includes indirect expenses in line with the practice of the country concerned. Valuation differences do not have a material impact on the consolidated financial statements.

13

Net assetsNet assets of the business segments include fixed assets, shares and working capital allocated to the business segments. Fixed assets also include deferred tax liabilities arising from the consolidated acquisition cost in accordance with the IAS.

Marketable securitiesMarketable securities are valued at the lower of acquisition cost or market value.

Oil exploration expendituresOil exploration expenditures are recorded using the suc-cessful efforts method under which all the expenditures of the exploration projects are capitalised and either depreci-ated according to production or expensed once it has been established that commercially exploitable oil or gas reserves were not discovered.

Research and developmentResearch and development expenditures are recorded as annual expenses with the exception of investments in buildings and equipment.

Income recognition of long-term projectsIncome from long-term projects is recognised according to percentage of completion. Compulsory provision is made for expected losses from long-term projects, as well as for costs arising during the warranty period.

Pension expensesPension expenses have been recognised in accordance with the practice observed in the appropriate country. The compulsory liabilities deficit of the Fortum Pension Foun-dation, as well as the liabilities on pensions granted by Fortum itself, have been included in pension costs and entered as a provision in the balance sheet.

Extraordinary itemsSales gains or losses and reductions in capital value resulting from withdrawing from a business, or significantly reducing Fortum’s presence in a business, have been entered as extraordinary income or expenses.

Deferred tax liabilitiesIn the consolidated accounts, appropriations have been divided into shareholders’ equity and deferred tax liabilities. Since 1 January 1998, deferred tax liabilities and assets have also been calculated on the basis of other timing differences. Deferred tax liabilities also include deferred tax liabilities included in fixed assets arising from the consoli-dated acquisition cost in accordance with the IAS.

ProvisionsForeseeable future expenses and losses that have no cor-responding revenue and which Fortum is committed or obliged to settle, and whose monetary value can reason-ably be assessed, are entered as expenses in the income statement and included as provisions in the balance sheet. These items include expenses relating to the decom-missioning of production platforms, guarantee reserves, expenses relating to the future clean-up of proven environ-mental damage, and pension liabilities.

Exchange rates 1997–2001The table below shows the most important exchange rates used in the financial statements during the years 1997–2001:

Exchange rates at the balance sheet date

1997 1998 1999 2000 2001

USD 1.0969 1.1667 1.0046 0.9305 0.8813GBP 0.6612 0.7055 0.6217 0.6241 0.6085SEK 8.6635 9.4874 8.5625 8.8313 9.3012NOK 8.0413 8.8716 8.0765 8.2335 7.9515

Average exchange rates over the period

1997 1998 1999 2000 2001

USD 1.1507 1.1102 1.0653 0.9236 0.8939GBP 0.7005 0.6692 0.6589 0.6087 0.6196SEK 8.7669 8.8373 8.8281 8.4805 9.2451NOK 8.1004 8.3731 8.3344 8.1051 8.0532


M€ 2001 2000

2. Information by segment Net sales

Power, Heat and Gas 1) 2,227 1,873 Electricity Distribution 473 470 Oil Refining and Marketing 7,223 7,807 Oil and Gas Upstream 408 387 Fortum Energy Solutions 603 887 Other operations 95 94 Internal invoicing – 619 – 904 Total 10,410 10,614 Operating profit

Power, Heat and Gas 367 211 Electricity Distribution 135 127 Oil Refining and Marketing 242 386 Oil and Gas Upstream 196 213 Fortum Energy Solutions 13 – 11 Other operations – 40 – 22 Eliminations 1 2 Total 914 906 Depreciation, amortisation and write-downs

Power, Heat and Gas 232 188 Electricity Distribution 121 122 Oil Refining and Marketing 140 148 Oil and Gas Upstream 102 84 Fortum Energy Solutions 18 18 Other operations and eliminations 10 11 Total 623 571 Significant non-recurring items in operating profit

Power, Heat and Gas 62 4 Electricity Distribution 15 – 1 Oil Refining and Marketing – 75 31 Oil and Gas Upstream – 2 Fortum Energy Solutions 21 13 Other operations and eliminations 1 23 Total 24 72

1) The fi gures have been adjusted to refl ect the change

in accounting practises adopted in natural gas trading.

M€ 2001 2000

Return on net assets (%)

Power, Heat and Gas 6.2 3.9 Electricity Distribution 6.2 5.7 Oil Refining and Marketing 13.7 22.4 Oil and Gas Upstream 15.6 18.2 Fortum Energy Solutions 5.3 – 6.4

2) The adjusted average capital employed for the year 2000 has been taken into account.

Net assets

Power, Heat and Gas *) 5,873 6,050 Electricity Distribution *) 2,113 2,264 Oil Refining and Marketing 1,688 1,842 Oil and Gas Upstream 1,271 1,236 Fortum Energy Solutions 236 257 Other operations and eliminations 154 182 Total 11,335 11,831 *) Net assets include deferred tax liabilities due to the allocated goodwill on consolidation in Power, Heat and Gas segment EUR 175 (216) million and in Electricity Distribution EUR 240 (262) million. Investments

Power, Heat and Gas 197 2,282 Electricity Distribution 100 489 Oil Refining and Marketing 224 129 Oil and Gas Upstream 90 133 Fortum Energy Solutions 80 92 Other operations and eliminations 22 6 Total 713 3,131 Average number of employees

Power, Heat and Gas 2,920 2,938 Electricity Distribution 954 976 Oil Refining and Marketing 4,524 4,815 Oil and Gas Upstream 61 63 Fortum Energy Solutions 5,442 6,445 Other operations 902 983 Total 14,803 16,220 Average number of personnel in companies consolidated using the proportionate method 3,481 3,338 of which included in the Group 1,741 1,669

2)

15

M€ 2001 2000

3. Effect on net sales of income recognition from contracts in progress Net sales from contracts in progress entered as income according to the percentage of completion for the period 109 127 for previous periods 190 203 Total 299 330 4. Net sales by market area Finland 4,216 4,348 Sweden 1,512 1,628 Other Nordic countries 255 261 Other European countries 1,979 1,573 USA and Canada 1,416 1,596 Other international sales 1,032 1,208 Total 10,410 10,614 5. Share of profits (losses) of associated companies Nynäs Petroleum Group 15 22 Gasum Group 9 8 Fingrid Oyj 6 7 Other associated companies 6 9 Total 36 46 Undepreciated consolidation differences in connection with associated companies amounted to EUR 132 (130) million. 6. Other operating income Rental income 16 14 Gains on sales of fixed assets 149 119 Other 38 7 Total 203 140 7. Depreciation, amortisation and write-downs Depreciation and amortisation according to the plan 565 565 Write-downs on fixed assets 58 6 Total 623 571

M€ 2001 2000

8. Other operating expenses Change in product inventories 136 – 99 Materials and external services Materials and supplies Purchases 7,483 7,673 Change in inventories – 161 104 External services 274 289 Personnel expenses Wages, salaries and remunerations 560 546 Other indirect employee costs Pension costs 70 61 Other indirect employee costs 53 73 Other operating expenses 697 676 Total 9,112 9,323 Salaries and remunerations of the Board

President and members of the Board 9 11 Pension commitments to corporate management

The executive directors of Fortum Corporation are eligible for retirement at the age of 60. Other Group companies have corresponding arrangements. Collaterals and other undertakings on Board’s behalf

There are no collaterals or other undertakings given on behalf of the Board. Loans receivable from Group management

There are no receivables from Group management.


M€ 2001 2000

9. Financial income and expenses Income from associated companies 1 1 Income from other long-term investments Dividend income 4 6 Interest income 15 16 Other interest income 41 41 Other financial income 3 8 Exhange rate differences – – 4 Write-downs on other long-term investments – 1 – 1 Interest expenses – 271 – 300 Other financial expenses – 4 – 40 Total – 212 – 273 10. Extraordinary expenses Other – – 10 Total – – 10 11. Income taxes Taxes on regular business operations 160 155 Taxes on extraordinary items – – 1 Total 160 154 Taxes for the period 170 169 Taxes for previous periods – 1 2 Change in deferred tax liabilities – 9 – 17 Total 160 154

17

12. Fixed assets and long-term investment

Intangible assets Intangible Goodwill Goodwill on Negative Other Advances Total rights consolidation goodwill on long-term paid M€ consolidation investments

Acquisition cost as of 1 January 2001 62 131 343 – 17 207 – 726Exhange rate differences and other adjustments 2 1 14 – 4 – 21Increases 3 5 14 – 13 2 37Decreases 1 3 20 – 1 20 – 43Transfer between categories – – – – – – –Acquisition cost as of 31 December 2001 66 134 351 – 16 204 2 708

Accumulated depreciation, amortisation and write-downs as of 1 January 2001 38 92 46 – 6 131 – 301Exhange rate differences and other adjustments – 5 – – 7 – 3 – – 9Accumulated depreciation, amortisation and write-downs of decrease and transfers – 9 – 1 – – 1 14 – 3Depreciation and amortisation for the period 4 9 18 – 1 18 – 48Write-downs for the period – – 22 – – – 22Accumulated depreciation, amortisation and write-downs as of 31 December 2001 46 102 79 – 6 138 – 359

Balance sheet value as of 31 December 2001 20 32 272 – 10 66 2 382Balance sheet value as of 31 December 2000 24 39 297 – 11 76 2 425

Tangible assets Land and Buildings Machinery Other Advances Total water areas and and tangible paid and structures equipment assets construction M€ in progress

Acquisition cost as of 1 January 2001 2,184 2,527 9,396 509 400 15,016Exchange rate differences and other adjustments – 98 – 56 – 164 – 12 116 – 214Increases 2 44 408 43 211 708Decreases 52 58 285 14 7 416Transfer between categories – 16 373 81 – 470 –Acquisition cost as of 31 December 2001 2,036 2,473 9,728 607 250 15,094

Accumulated depreciation, amortisation andwrite-downs as of 1 January 2001 51 1,111 4,112 232 – 5,506Exchange rate differences and other adjustments – 3 – 73 – 13 82 – – 7Accumulated depreciation, amortisation and write-downs of decreases and transfers – 2 35 247 34 – 314Depreciation and amortisation for the period – 77 407 33 – 517Write-downs for the period – – 25 11 – 36Accumulated depreciation, amortisation and write-downs as of 31 January 2001 50 1,080 4,284 324 – 5,738

Revaluations 13 68 2 – – 83

Balance sheet value as of 31 December 2001 1,999 1,461 5,446 283 250 9,439Balance sheet value as of 31 December 2000 2,146 1,484 5,286 277 400 9,593


Other long-term investments Shares in Receivables Other Other Total associated from shares receivables companies associated and holdingsM€ companies

Acquisition cost as of 1 January 2001 1,114 281 183 63 1,641Exchange rate differences and other adjustments – 12 – 8 5 – 7 – 22Increases 41 5 5 15 66Decreases 108 58 37 24 227Transfers between categories 9 – – 9 – –Acquisition cost as of 31 December 2001 1,044 220 147 47 1,458

Accumulated write-downs as of 1 January 2001 4 – 7 – 11Write-downs for the period – – – – –Reversals of write-downs – – – – –Accumulated write-downs as of 31 December 2001 4 – 7 – 11

Revaluations – – 1 – 1Retained earnings in associated companies 59 – – – 59Balance sheet value as of 31 December 2001 1,099 220 141 47 1,507Balance sheet value as of 31 December 2000 1,173 281 177 63 1,694

The acquisition cost of the fixed assets of the companies acquired during the financial year is transferred to the Group’s acquisition cost and accumulated depreciation to the Group’s accumulated depreciation.

Other shares include EUR 27 (5) million of quoted shares, the market value of which was EUR 26 (8) million.Associated companies include EUR 87 (87) million of quoted shares, the market value of which was EUR 130 (78) million.

19

M€ 2001 2000

13. Capitalised interest expenses Buildings and structures 5 3 Machinery and equipment 63 63 Advances paid and construction in progress 26 21 Total 94 87 Capitalised interest expenses during the period were EUR 7 (27) million. 14. Revaluations Revaluations Increases Decreases Revaluations as of as of 1 Jan. 31 Dec.

Land areas 13 – – 13 Buildings 68 – – 68 Machinery and equipment 2 – – 2 Other shares and holdings 1 – – 1 84 – – 84 Revaluations are based on current replacement cost. 15. Inventories Raw materials and supplies 302 277 Work in progress 93 198 Products/finished goods 169 217 Other inventories 30 28 Advanced paid 4 26 Total 598 746 Difference between replacement value and book value of inventories is immaterial. 16. Long-term receivables Receivables from associated companies Other receivables 44 17 Accrued income and prepaid expenses 2 2 Total 46 19 Loans receivable 1 2 Other receivables 50 56 Accrued income and prepaid expenses 2 20 Total 99 97

M€ 2001 2000

17. Short-term receivables Trade receivables 1,098 1,147 Receivables from associated companies Trade receivables 12 26 Other receivables 6 6 Accrued income and prepaid expenses 5 6 Total 23 38 Loans receivable 8 8 Other receivables 166 149 Accrued income and prepaid expenses 372 494 Total 1,667 1,836 Short-term accrued income and prepaid expense

Accrued interests 9 5 Accrued taxes 6 6 Other 362 489 Total 377 500 18. Treatment of balance sheet items relating to income from projects in progress All contracts in progress are included in the balance sheet on a project basis. The net amount of advance payments made and accrued income relating to contracts as well as advance payments received and accrued expenses relating to contracts is included in the balance sheet either in accrued income or in accrued expenses separately for each project.

Advance payments for inventories – 134 Prepayments and accrued income 270 222 Deductions in inventories and financial assets 270 356 Advance payments received 270 222 Accruals – 134 Deductions in liabilities 270 356

19. Investments The book value of the financial investments was EUR 156 (15) million and the market value was EUR 156 (15) million.


M€ 2001 2000

20. Changes in shareholders’ equity Share capital as of 1 January 2,875 2,640 Share issue – 207 Transfer from share premium – 28 Share capital as of 31 December 2,875 2,875 Share premium as of 1 January 30 3 Increase in share premium – 27 Sale of treasury stock 31 – Transfer to the share capital – – 28 Transfer from unrestricted equity – 28 Share premium as of 31 December 61 30 Reserve fund as of 1 January – – Transfer from unrestricted equity 46 – Reserve fund as of 31 December 46 – Retained earnings as of 1 January 2,117 2,062 Dividends paid – 183 – 141 Own shares 189 – 189 Transfer to restricted equity – 46 – 28 Translation differences and other changes – 33 – 10 Net profit for the period 459 423 Retained earnings as of 31 December 2,503 2,117 Distributable funds as of 31 December 2,503 2,117 21. Provisions for liabilities and charges Provisions for pensions 19 19 Other provisions Provisions for contracts for differences 32 64 Provisions for a planned refinery maintenance and upgrade shutdown 11 33 Provisions for Exploration & Production 16 12 Other provisions 66 69 Total 144 197 22. Deferred tax liabilities Change in deferred tax liabilities Appropriations – 13 – 13 Consolidation entries – 12 2 Separate financial statements of subsidiaries 16 – 6 Total – 9 – 17 Deferred tax liabilities Appropriations 610 670 Consolidation entries 412 424 Separate financial statements of subsidiaries 99 83 Total 1,121 1,177

M€ 2001 2000

23. Liabilities Long-term liabilities

Bonds 1,162 1,399 Convertible bonds – 4 Loans from financial institutions 878 1,392 Pension loans 336 284 Advances received 2 2 Liabilities to associated companies Other long-term liabilities 162 160 Total 162 160 Other long-term liabilities 975 1,221 Accruals and deferred income 1 1 Total 3,516 4,463 of which interest-bearing 3,099 4,017 Short-term liabilities

Bonds 478 96 Convertible bonds 4 – Loans from financial institutions 487 639 Pension loans 9 9 Advances received 68 105 Trade payables 579 658 Liabilities to associated companies Advances received 7 1 Trade payables 18 24 Other short-term liabilities 8 3 Accruals and deferred income 5 6 Total 38 34 Other short-term liabilities 663 739 Accruals and deferred income 431 408 Total 2,757 2,688 of which interest-bearing 1,177 1,046 Interest-bearing and interest-free liabilities

Interest-bearing liabilities 4,276 5,063 Interest-free liabilities 1,997 2,088 Total 6,273 7,151 Maturity of long-term liabilities

Year 2002 970 2003 311 2004 376 2005 344 2006 354 2007 and later 2,131 Total 4,486

21

M€ 2001 2000

Liabilities due after five years

Bonds 398 490 Loans from financial institutions 311 253 Pension loans 330 269 Other long-term liabilities 1,092 1,131 Total 2,131 2,143 Long-term accruals and deferred income

Other long-term accruals and deferred income 1 1 Total 1 1 Short-term accruals and deferred income

Accrued interests 92 75 Accrued taxes 21 19 Wages, salaries and other indirect employee costs 88 89 Other short-term accruals and deferred income 235 231 Total 436 414 24. Bonds, debentures and other notes Issuing year Maturity year 2001 2000 Fortum Power and Heat Oy 1991 USD loan 2001 – 31 1991 USD loan 2002–2002/11 60 63 1991 USD loan 2011 30 32 1992 USD loan 2002 39 41 1992 USD loan 2005 37 39 1992 USD loan 2007 47 49 Birka Energi AB 1999 SEK loan 2002 3 3 1999 SEK loan 2002 1 1 1999 SEK loan 2004 3 3 1999 SEK loan 2004 37 39 1999 SEK loan 2003 8 8 1999 SEK loan 2004 4 4 1999 SEK loan 2004 16 17 1999 SEK loan 2002 3 3 1999 SEK loan 2002 4 4 1999 SEK loan 2005 3 3 1999 SEK loan 2002 6 6 1999 SEK loan 2002 4 4 1999 SEK loan 2002 6 6 1999 SEK loan 2002 5 6 1999 SEK loan 2004 19 20 1999 SEK loan 2004 16 17 1999 SEK loan 2004 6 6 1999 SEK loan 2004 6 6 1999 SEK loan 2004 2 2 1999 SEK loan 2004 6 6

Issuing year Maturity year 2001 2000 1999 EUR loan 2006 249 244 2000 EUR loan 2005 124 120 2000 EUR loan 2008 10 9 2000 EUR loan 2002 5 5 2000 EUR loan 2001 – 27 2000 EUR loan 2007 5 5 2000 GBP loan 2002 53 50 2000 SEK loan 2003 5 6 2000 SEK loan 2003 22 22 2000 SEK loan 2004 5 6 2000 SEK loan 2006 21 22 2000 SEK loan 2003 6 6 2000 SEK loan 2002 6 6 2000 SEK loan 2004 5 6 2000 SEK loan 2003 3 3 2000 SEK loan 2002 5 6 2000 SEK loan 2008 11 11 2000 SEK loan 2002 5 6 2000 SEK loan 2001 – 22 2000 SEK loan 2002 3 2 2000 SEK loan 2003 5 6 2000 SEK loan 2003 11 11 2000 SEK loan 2003 5 6 2000 SEK loan 2003 3 3 2000 SEK loan 2003 5 6 2000 SEK loan 2003 11 11 2000 SEK loan 2003 3 3 2000 SEK loan 2003 3 3 2000 SEK loan 2003 3 3 2000 SEK loan 2004 5 6 2000 SEK loan 2001 – 6 2000 SEK loan 2002 5 6 2000 SEK loan 2002 2 3 2000 SEK loan 2001 – 6 2000 SEK loan 2002 27 28 2000 SEK loan 2002 11 11 2000 USD loan 2003 6 5 2001 SEK loan 2008 249 – Gullspång Kraft AB 1993 SEK loan no. SE 0000209488 2003 16 17 1996 SEK loan no. SE 0000325714 2001 – 11 Birka Värme Stockholm AB 1997 SEK loan 1997–2006 1 1 Fortum Finance B.V. 1992 1999–2007 338 320 Fortum Oyj 1994 2001 – 3 Fortum Oil and Gas Oy 1992 I 2002 17 17 Total 1,640 1,495


M€ 2001 2000

25. Contingent liabilities Collaterals and other Debt Value Debt Value undertakings on own behalf of of collateral collateral

Own debt secured by pledged assets

Bonds – – 106 30 Loans from financial institutions 247 169 103 84 Pension loans 10 12 14 16 Other liabilities 379 58 334 58 Total 636 239 557 188 Own debt secured by real estate mortgages

Bonds – – 6 6 Loans from financial institutions 35 85 93 99 Pension loans 42 42 41 42 Trade payables – 10 – 9 Other liabilities – 7 – – Total 77 144 140 156

Own debt secured by company mortgages

Bonds – – – 3 Loans from financial institutions 2 8 5 16 Other liabilities – – – 3 Total 2 8 5 22 Own debt secured by other mortgages

Loans from financial institutions 16 52 27 52 Other liabilities – – 1 2 Total 16 52 28 54

Collaterals for other own commitments

Pledges – 2 Real estate mortgages 56 87 Company mortgages 3 3 Other mortgages 11 6 Total 70 98

Collaterals given on behalf of associated companies

Pledges 4 – Total 4 – Collaterals given on behalf of others

Pledges – 1 Total – 1

Collaterals total 517 519

M€ 2001 2000

Liability for nuclear waste disposal 515 489 Share of reserves in the Nuclear Waste Disposal Fund – 505 – 460 Liabilities in the balance sheet 10 *) 29

*) Mortgaged bearer papers as security Other contingent liabilities

Operating leasing liabilities

Due within a year 80 68 Due after a year 97 122 Total 177 190

Finance leases are recognised as assets and liabilities in the balance sheet.

Sale and leaseback 18 18

Other contingent liabilities given

on own behalf 462 543

Other undertakings given on behalf

participating interests

Guarantees 177 165 Other contingent liabilities 352 368 Total 529 533

Other contingent liabilities given on behalf of others

Guarantees 65 140 Other contingent liabilties 4 20 Total 69 160

Other contingent liabilities total 1,255 1,444

*)

23

Derivatives

M€ 2001 2000

Contract Fair Not re- Contract Fair Not re- or value cognised or value cognised notional as an notional as anInterest and currency derivatives value income value income

Forward rate contracts 5,026 – 2 – 2 85 – –Interest rate swaps 5,545 – 14 25 3,239 – 7 2

Forward foreign exhangecontracts 1), 2) 4,830 – 27 – 13 2,358 48 – 16Currency swaps 3,180 312 35 2,308 149 – 6Purchased currency options 163 – 4 – 4 144 1 1Written currency options 76 – – 90 1 1

1) Includes also closed forward and future positions.2) Includes contracts used for equity hedging.

Volume Fair Not re- Volume Fair Not re- 1000 bbl value cognised 1000 bbl value cognisedOil futures and forward as an as aninstruments income income

Sales contracts 7,090 – 1 – 1 15,130 21 17Purchase contracts 4,525 1 1 4,341 – 10 – 10Purhased options 5,400 – 1 – 1 2,093 – –Written options 900 1 1 1,250 – –

Volume Fair Not re- Volume Fair Not re- TWh value cognised TWh value cognised as an as anElectricity derivatives income income

Sales contracts 52 – 34 – 34 70 155 26Purchase contracts 44 41 41 67 – 163 – 26Purhased options 3 – 1 – 1 3 – –Written options 1 2 2 3 – –

In addition to other contingent liabilities, a guarantee has been given on behalf of Gasum Oy, which covers 75% of the natural gas commitments arising from the natural gas supply agreement between Gasum and OOO Gazexport.

The fair values of derivative contracts subject to public trading are based on market prices as of the balance sheet date. The fair values of other derivatives are based on the present value of cash flows resulting from the contracts, and, in respect of options, on evaluation models.

The derivative contracts are mainly used to manage the Group’s currency, interest rate and price risk.


26. Risk managementFinancing and financial risks are managed centrally by Group Treasury in accordance with Group Treasury Policy, as approved by Fortum’s Board of Directors. In addition, Group Treasury acts as an internal bank and gives advice on financial matters to the business units and Group com-panies. Birka Energi, half of which was owned by Fortum in 2001, has managed its finances independently and is included in the enclosed figures only in respect of the translation position.

Financial position and liquidity riskGroup Treasury’s remit is to optimise external financing and so minimise interest and other financing expenses. The key objective is to use a variety of financing sources, instru-ments and lenders and to ensure that financing arrange-ments are as flexible as possible. The Group aims to restrict its refinancing risk, which is associated with the availability or cost of refinancing, by managing the maturi-ties of its loan portfolio. In order to achieve these objec-tives, external financing is mainly centralised in Group Treasury and financing of Group companies is managed under internal arrangements providing it is cost effective and practicable under the relevant national legislation. External interest-bearing debt by currency, average inter-est rates and average maturities are given in Table 1.

Liquidity risk refers to the Group’s ability to fund its busi-ness needs from liquid assets. It is managed by using cash pooling arrangements, commercial paper programmes and other credit lines. Within each country the Group operates in, treasury and cash management, including short term funding requirements, are managed as centrally as possi-ble within the local Group accounting system. The Group’s most important credit limits are given in Table 2.

Financial risk management

Table 1Interest-bearing debt by currency as of 31 Dec 2001

Currency Amount Avg interest Avg M€ rate % maturity years

EUR 949 4.4 3.4USD 851 5.0 1.3SEK 441 6.2 3.9GBP 72 8.0 0.1Muut 103 6.4 2.9Total 2,416 5.1 2.3

Birka Energi 1,860 Fortum Group total 4,276

Table 2Major credit lines as of 31 Dec 2001(Birka Energi not included)

Credit line Total amount Outstanding Avg Maturity M€ amount interest date M€ rate %

Fortum Oyj, CP programme 500 – –Fortum Oyj, EUR 250M credit line 250 – 19.12.2002Fortum Oyj, EUR 200M credit line 200 – 16.12.2002Fortum Oyj, EUR 600M syndicated credit line 600 175 3.8 28.04.2005Fortum Oil and Gas Oy, USD 800M syndicated credit line 545 454 2.2 2001–2003Fortum Power and Heat Oy, DEM 760M syndicatedcredit line 389 204 4.1 12.06.2004Total 2,484 833 3.0

Foreign exchange riskForeign exchange risks are managed to minimise any nega tive impact caused by exchange rate volatility on the Group’s cash flow, results and balance sheet. The pricing currency of the oil markets is the US dollar. In Nord Pool, the Nordic electricity market, the trading currency is the Norwegian krona. These factors, among others, expose the business to short-term transaction risks and to longer-term economic exposures, compared with companies with the same base and business risk, but for whom these are domestic currencies. Treasury policy requires business units to close their foreign exchange positions for each business in line with the operational planning period. This varies between 12 and 18 months. The risk exposures of the businesses are defined in co-operation with Group Treasury. Forecast flows which lie outside the operational planning period are handled as economic exposures, and the covering of these positions is decided by the line management of the business units.

Transaction risk refers to cash flow volatility caused by exchange rate fluctuations. Economic exposure refers to the company’s relative position compared with its com-petitors. Business units and Group companies transfer their risk, including loans and receivables (Table 3), by hedging transactions with Group Treasury. In accordance with treasury policy, management has set risk limits for the transaction position of Group Treasury, which enable

25

restricted position taking. The net position is managed with forward contracts, swaps and options.

In addition to the business-based foreign exchange exposure, Group Treasury is responsible for managing the Group’s translation position (Table 4). This consists of investments in foreign subsidiaries and associated compa-nies, the equity value of which in the Group’s base cur-rency is exposed to exchange rate fluctuations. The policy is to keep the translation differences within a limit of EUR 80 million for currencies, which can be hedged. Foreign currency loans and forward contracts are used to hedge the translation position.

Interest rate riskFortum’s interest rate exposure is mainly in interest-bearing net debt on the balance sheet and interest rate derivatives. The long-term objective of interest rate risk management is to minimise the Group’s interest expenses in line with its defined risk limits. In hedging the interest rate exposure, the target is to maintain the risk as close as possible to a neutral position. Exposure is therefore minimised because a change in interest expenses, resulting from movements in interest rates, will be eliminated by a simultaneous con-trary effect on business performance. A neutral interest rate position by currency is determined using benchmark interest rates.

Interest rate risk can be divided into market risk and flow risk. Market risk refers to the effect of a change in interest rates on the present value of the net position, comprising interest-bearing debt and receivables. Interest rate risk is measured by modified duration. Interest rate sensitivity is measured as the effect of a change of one percentage point in the interest rates on the present value of net debt. Flow risk refers to the average interest period of interest-bearing debt and receivables by currency (gap analysis) and its effect on net interest expenses. The sensi-tivity of flow risk is measured by calculating the effect of an interest rate increase of one percentage point on the net interest expenses over the next 12 months.

During 2001 the modified duration of the loan portfolio was reduced to almost one. At the end of the year it was exceptionally long for euros as a result of improved liquid-ity. The excess funds were invested temporarily in short-term money market instruments. (Table 5)

Tabel 3Group treasury’s transaction exposure as of 31 Dec 2001

M€ Net position Hedge Open

SEK 1,488 – 1,484 4USD 704 – 703 1GBP 154 – 154 –NOK – 103 103 –CAD 45 – 45 –EEK 8 – 7 1Other 5 – 3 2Total 2,301 – 2,293 8

Table 4Group treasury’s translation exposure as of 31 Dec 2001

Investment Hedge Open HedgeM€ ratio

SEK 1,373 – 1,009 364 73%USD 358 – 356 2 99%GBP 100 – 99 1 99%CAD 64 – 58 6 90%Other 151 – 40 111 26%Total 2,046 – 1,562 484 76%

Table 5Fortum’s interest rate exposure(Birka Energi not included)

Modified Flow risk Market risk duration M€ M€

EUR 1.8 – 6SEK 1.0 6 16USD 0.9 6 10Other 1 –Total 1.1 13 32

Credit riskCredit risk is where the counterparty fails to fulfil its con-tractual obligations in financial transactions. Group Treas-ury’s credit risk exposure consists of derivative contracts and investments. Limits for the credit risk position are defined in the treasury policy. The calculation of the credit risk position is based on the market value of contracts. During 2001 no credit losses incurred.


Price risks of commoditiesThe core operations of the Group are liable to commodity price and volume risks. The results for Oil and, to some extent, Gas Upstream are dependent on the development of the world market price for crude oil. The value of oil and gas reserves is affected not by short-term price fluc-tuations but by long-term price development. The prof-itability of Oil Refining is most affected by the refining margin, in other words, by the differential between the world market price for crude oil and international market and stock exchange prices for petroleum products. The performance of Power Generation is most affected by the market price of electricity and the availability of hydro-power production, which depends on the volume of hydro flows.

Risk management guidelines on commodity market risks have been drafted for each of the business units. These guidelines outline measures that may be taken to moderate the risk status of the individual unit. Business unit-specific risk limits have been defined for Trading operations in particular. Hedging instruments used to manage commod-ity risks include futures and forward contracts, options and swaps.

27. Legal proceedingsIn an administrative litigation process instituted by Fortum Oil and Gas Oy in 1999, the company demands that the town of Naantali refund harbour charges collected by the town up to a maximum amount of EUR 35 million plus interest. Fortum’s complaint was dismissed by the Turku Administrative Court at the end of 2001, but the company has decided to file an appeal with the Supreme Administra-tive Court.

Fortum’s subsidiary, Neste Canada Inc., is plaintiff and defendant in a counterclaim in legal proceedings concern-ing the environmental cleaning costs of a factory that is part of the chemicals business, which was purchased for Neste Chemicals in 1992 and has since been sold.

The other party is Reichhold Ltd. The legal proceed-ings, which have been pending since 1997 at the Toronto Provincial Court, are at the stage of hearing the parties’ evidence. In management’s opinion, the result of the pro-ceedings will not have any material impact on Fortum’s operational performance or financial position.

In summer 2001, the Directorate-General for Competi-tion of the European Commission sent Fortum’s Norwegian subsidiary – along with 29 other companies which produce or sell natural gas extracted from the Norwegian continen-tal shelf – a notice in which it was claimed that the said companies are in breach of EU competition law because of participation in the activities of a gas sales organisation called Gassforhandlingssutvalget (GFU).

Until now, no Norwegian gas supplier has been allowed to sell gas directly, but the Norwegian authorities have required that all gas sales are effected through GFU, which has been established for this purpose by Statoil and Norsk Hydro.

The Commission has been studying Norwegian gas sales for five years. Fortum began gas production in Norway at the Åsgard Gas Field in October 2000. The value of gas sold by Fortum reached ca. 80 million euro at the end of 2001. Fortum’s response to the Commission is based on the fact that gas sales have been allowed by the Norwegian authorities only through GFU, and Fortum has had no alternatives.

Fortum has extensive international operations and, in addition to the above, it is both defendant and plaintiff in several legal proceedings in connection with its opera-tions. In management’s opinion, the results of these pro-ceedings, which mostly concern relatively minor interests, will not together or separately have any materially adverse impact on Fortum’s operational performance or financial position.

27

Group shares and holdings

Domicile No. of Group Nominal value Book value shares holding, % CUR 1,000 31 Dec 2001 EUR 1,000

Group shares (book value over EUR 2 million)

Power, Heat and GasAS Fortum Virumaa Estonia 50,000 100.0 EEK – 3,196Bullerforsens Kraft AB Sweden 264,000 88.0 SEK 26 89,018Dalälvens Kraft AB Sweden 25,000 100.0 SEK 100 343,000Edenderry Power Limited Ireland 7,000 100.0 IEP 7,000 8,888Fortum Direct Ltd UK 1,900,000 100.0 GBP 1,900 2,263Fortum Energia AS Estonia 100 100.0 EEK 1,000 19,022Fortum Energiantuotanto Oy Espoo 27,035 100.0 EUR 2,704 13,486Fortum Energie GmbH Germany 6 100.0 DEM 600 127,822Fortum Energy Plus Ltd UK 1,599,996 100.0 GBP 1,600 3,147Fortum Finanz Management GmbH Germany 1 100.0 EUR 25 40,929Fortum Gas Ltd UK 3,030,000 100.0 GBP 3,030 4,979Fortum Holding B.V. Netherlands 13,456 100.0 NLG 13,456 60,897Fortum Kraft AB Sweden 100,000 100.0 SEK 100,000 193,581Fortum Lämpö Oy Espoo 2,000 100.0 FIM 10,000 8,399Fortum Power and Heat AB Sweden 50,000 100.0 SEK 8,046,868 1,173,687Fortum Termest AS Estonia 296,312 86.2 EEK – 4,155IVO Kraftwerk Lubmin GmbH Germany 1 100.0 EUR 2,863 2,867Kinnekulle Energi AB Sweden 325,000 100.0 SEK 32,500 4,532Kopparkraft AB Sweden 6,859,670 100.0 SEK 100 376,324Kopparkraft Intressenter AB Sweden 1,000,000 100.0 SEK 100,000 244,412Ljusnans Kraft AB Sweden 5,000 100.0 SEK 100 266,105Nynäshamn Värme AB Sweden 2,000 100.0 SEK 2,000 2,043Saracen Gas Ltd UK 85,101 100.0 GBP 85 6,012Spjutmo Kraft AB Sweden 85,000 85.0 SEK 100 24,674Uudenmaan Energia Oy 1) Nummela 2,500 50.0 EUR 420 3,418

1) Fortum Corporation has a 50% holding, but, according to the partnership contract, Fortum has half of the Board memberships and a permanent chairmanship.

Electricity DistributionElektrizitätswerk Wesertal GmbH Germany 1 100.0 EUR 35,800 388,735Fortum Viimsi AS 1) Estonia 23,515 99.2 EEK – 2,389Fortum Aluesiirto Oy Paimio 9,650 100.0 FIM 9,650 28,746Fortum Läänemaa AS 1) Estonia 880,000 100.0 EEK – 5,868Fortum Sähkönjakelu Oy Paimio 2,039 100.0 FIM 2,039 3,284Fortum Sähkönsiirto Oy Espoo 396,765 100.0 EUR 39,677 198,351Koillis-Pohjan Sähkö Oy 1) Pudasjärvi 43,560 100.0 FIM 4,356 35,747Merikarvian Sähkö Oy Merikarvia 526 100.0 FIM 117 2,355Oy Tersil Ab Paimio 15,000 100.0 FIM 1,500 2,750Oy Tertrade Ab Paimio 15,000 100.0 FIM 1,500 2,425

1) Includes also power generation and/or sales.

Oil Refining and MarketingBest Chain Oy Helsinki 112,800 100.0 EUR 11,280 45,413Eastex Crude Company USA – 70.0 USD – 3,540Fortum Markets Oy 1) Helsinki 22,542 100.0 EUR 22,542 87,411Fortum Oil and Gas AB Sweden 2,000,000 100.0 SEK 200,000 23,972Fortum Oil N.V. Belgium 60,389 100.0 BEF 603,890 13,641Fortum Polska sp.z.o.o. Poland 6,809 100.0 PLZ 1,815 20,434Neste Crude Oil Inc. USA 1,000 100.0 USD 1 2,745



Neste Eesti AS Estonia 1,738 100.0 EEK 1,738 5,926Neste Latvija SIA Latvia 180 100.0 LVL 11,318 33,730Neste Lietuva UAB Lithuania 709,830 100.0 LTL 70,983 29,000Neste Markkinointi Oy Espoo 210,560 100.0 EUR 21,056 47,567Neste MTBE S.A. Portugal 600,000 100.0 EUR 3,000,000 2,096Neste Oil Holding (U.S.A.) Inc. USA 1,000 100.0 USD 1 18,428Neste Oil Services Inc. USA 1,000 100.0 USD 1 48,431Neste St. Petersburg OOO Russia 10 100.0 RUR 1,052,821 58,427Tehokaasu Oy Helsinki 7,200 100.0 FIM 18,000 3,900Tidelands Oil Production Company Partnership USA – 80.0 USD – 6,000


Oil and Gas UpstreamFortum Petroleum AS Norway 2,000 100.0 NOK 2,000 9,579

Fortum Energy SolutionsETV Eröterv Rt. Hungary 54,422 84.2 HUF 544,220 2,859Fortum Enertec Hameln GmbH Germany – 100.0 EUR 12,833 11,396Fortum Engineering Oy Helsinki 11,000 100.0 FIM 110,000 18,728Fortum Kraftwerk Burghausen GmbH Germany 1 100.0 EUR 500 10,000Fortum Power Holding B.V. Netherlands 240 100.0 EUR 24 49,725Fortum Service Oy Helsinki 5,000 100.0 FIM 50,000 8,409Kotkan Putkityö Oy Kotka 100 100.0 FIM 100 2,102Laem Chabang Power Company Limited Thailand 66,999,994 100.0 THB 670,000 17,009

Other operationsFortum Assets Oy Helsinki 400,000 100.0 FIM 40,000 22,979Fortum Capital Ltd (67.57% of votes) Guernsey 500 29.4 EUR 250 50,351Fortum Chemicals Benelux Holding B.V. Netherlands 173,429 100.0 NLG 78,390 29,245Fortum Energy Ltd UK 5,362,000 100.0 GBP 5,362 8,961Fortum Finance B.V. Netherlands 237,001 100.0 NLG 237,001 104,964Fortum Investments Ltd Ireland 30,910,001 100.0 USD 30,910 78,425Fortum Investments Oy Espoo 10,000 100.0 FIM 100,000 84,094Fortum Project Finance S.A. Luxembourg 154,000 100.0 BEF 1,540,000 167,518Kiinteistö Oy IVOn Vanhakaupunki Helsinki 1,600 100.0 FIM 16,000 10,764NAPS Systems Oy Helsinki 11,363 61.0 EUR 1,136 4,279

Group companies consolidated using the pooling-of-interests methodFortum Power and Heat Oy Helsinki 91,197,542 100.0 EUR 153,212 2,898,575Fortum Oil and Gas Oy Espoo 98,523,082 100.0 EUR 165,704 2,625,705

Participating interestsJoint ventures (book value over EUR 2 million)

Power, Heat and GasAB Hudik Kraft Sweden 6,000 50.0 SEK 6,000 2,417AB Hälsingekraft Sweden 74,500 50.0 SEK 500 27,989AB Skandinaviska Elverk Sweden 1,000,000 50.0 SEK 100,000 98,869Arvika Energi AB Sweden 4,300 50.0 SEK 4,300 2,718Avestaforsen AB Sweden 328,000 50.0 SEK 32,800 23,802Baerum Fjernvarme AS Norway 35,000 32.5 NOK 35,000 5,913Baerum Fjernvarme Holding AS Norway 18,688 32.5 NOK 18,688 2,911

29


Birka Energi AB Sweden 10,000,000 50.0 SEK 1,000,000 1,236,400Birka Energi AS Norway 17,500 50.0 NOK 50 3,445Birka Kraft AB Sweden 44,155,643 50.0 SEK 220,778 810,946Birka Marknad AB Sweden 125,000 50.0 SEK 125,000 69,286Birka Värme AB Sweden 1,000 50.0 SEK 1,000 19,143Birka Värme Avesta AB Sweden 1,000 50.0 SEK 50 4,534Birka Värme Holding AB Sweden 4,505 50.0 SEK 50 645,128Birka Värme Lidingö AB Sweden 500 50.0 SEK 50 11,907Birka Värme Stockholm AB Sweden 6,099,985 50.0 SEK 609,999 537,565Brista Kraft AB Sweden 2,116 50.0 SEK – 6,972Brännälven Kraft AB (17.7% of votes) Sweden 13,403 3.4 SEK 125 13,063Cajero AB Sweden 1,000 50.0 SEK 500 40,886Ekerö Energi AB Sweden 9,752 39.8 SEK 621 12,356Eksjö Elförsäljning AB Sweden 500 50.0 SEK 50 280,537HemEI AB Sweden 500,000 50.0 SEK 50 2,688Hudiksvalls Energiverk AB Sweden 1,000 50.0 SEK 500 7,466Krångede AB Sweden 50 50.0 SEK 50 196,597Lindsnäsfors Kraft AB Sweden 2,151,924 50.0 SEK 215,193 91,226Ljunga Kraft AB Sweden 5,088,813 50.0 SEK 142,487 91,019Nybroviken Kraft AB (26.5% of votes) Sweden 50,000 5.1 SEK 50 12,287Parteboda Kraft AB (26.5% of votes) Sweden 500 5.1 SEK 50 17,253SEV Holding AB Sweden 500 50.0 SEK 50 11,494Stockholm Energi Vattenkraft AB Sweden 250 50.0 SEK 100 245,792Tåsan Kraft AB Sweden 450 40.0 SEK – 4,365Uddeholm Kraft AB Sweden 2,976,666 50.0 SEK 297,667 43,115Voxnan Kraft AB (26.5% of votes) Sweden 500 5.1 SEK 50 69,303Värmlandskraft OKG-delägarna AB Sweden 154 36.7 SEK 154 4,895Ångefallens Kraft AB Sweden 2,500 25.0 SEK 50 4,199Älvkraft i Värmland Intressenter AB (22.8% of votes) Sweden 62,500 12.5 SEK 50 3,231 Electricity DistributionAB Ryssa Elverk Sweden 311,241 49.4 SEK 25 23,528Birka Nät AB Sweden 15 50.0 SEK 150 387,047Birka Nät Holding AB Sweden 500 50.0 SEK 50 389,129Birka Nät Småland AB Sweden 250,000 50.0 SEK 25,000 43,005Birka Nät Yngeredsfors AB Sweden 400,000 50.0 SEK 40,000 92,730Ockelbo Kraft AB Sweden 15,000 50.0 SEK 25 3,040Täby Energi Nät AB Sweden 16,000 50.0 SEK 4,000 2,516Värmlandsenergi AB Sweden 26,806,635 50.0 SEK 268,067 35,096 Fortum Energy SolutionsBirka Service AB Sweden 54,546 54.5 SEK 12,067 7,530 Other associated companies (book value over EUR 2 million) Power, Heat and GasAB Aroskraft Sweden 24,750 55.0 SEK 13,375 3,846Gasum Oy Espoo 13,250,000 25.0 FIM 265,000 44,570Blåsjön Kraft AB Sweden 3,000 25.0 SEK 50 7,863Gemeinschaftskraftwerk Weser GmbH Germany – 33.0 EUR 28,121 28,121Horrmundsvalla Kraft AB Sweden 1,000 50.0 SEK 1,000 4,413Härjeåns Kraft AB Sweden 15,822 23.2 SEK 50 3,546Ishavskraft AS Norway 7,105 49.0 NOK 7,105 6,926Lappeenrannan Lämpövoima Oy Lappeenranta 1,800 50.0 FIM 18,000 3,027



Mellansvensk Kraftgrupp AB Sweden 36,665 47.9 SEK 30,849 28,044Nova Naturgas AB Sweden 510,201 20.4 SEK 24,490 23,377OKG AB Sweden 240,152 26.7 SEK 15,115 5,022Stensjöns Kraft AB Sweden 110,000 25.0 SEK 5,500 23,062Teollisuuden Voima Oy Helsinki 189,877,285 26.6 FIM 189,877 124,655

Electricity DistributionEspoon Sähkö Oyj 1) Espoo 4,348,560 27.6 FIM 8,697 87,205Fingrid Oyj Helsinki 834 25.1 FIM 83,400 28,054Karlskoga Energi & Miljö AB 1) Sweden 26,950 49.0 SEK 26,950 36,877Keuruun Sähkö Oy 1) Keuruu 1,754 35.1 FIM 18 2,458Sallilan Sähkölaitos Oy Alastaro 27,250 46.0 FIM 1,363 8,174


Oil Refining and MarketingCanTerm Canadian Terminals Inc. Canada 50 50.0 CAD 200 7,104Nynäs Petroleum AB Sweden 33,765 50.0 SEK 33,765 42,645

Oil and Gas UpstreamSeverTEK ZAO Russia 107,500 50.0 USD 21,500 8,668

Fortum Energy SolutionsPanjin Liaohe Fortum Thermal Power Company Co. Thailand – 50.0 EUR – 9,007

Other operationsEnermet Group Oy Jyväskylä rur. mun. 268,349 26.7 FIM 26,835 4,513Finnglass Oy Alavus 470 37.0 FIM 2,350 2,523UVCC II Parallel Fund, L.P. USA – 33.3 USD 4,545 2,150

Other participating interests (book value over EUR 2 million)Kemijoki Oy Rovaniemi 427,424 17.5 FIM 42,742,400 293,774

Other shares and holdings (book value over EUR 2 million)

Power, Heat and GasEesti Gaas AS Estonia 1,212,629 17.7 EEK 27,503 5,245Lapin Sähkövoima Oy Tervola 183,534 13.0 FIM 184 19,624AO Lenenergo, St Petersburg Russia 54,344,760 7.1 RUR 54,345 23,427Nokian Lämpövoima Oy Nokia 19,900 19.9 FIM 199 4,373Stadtwerke Detmold GmbH Germany – 12.5 EUR 2,487 2,487

Electricity DistributionImatran Seudun Sähkö Oy (16.6% of votes) Imatra 69,594 14.6 FIM 14,981,677 2,522Vakka-Suomen Voima Oy Laitila 14,210 16.7 FIM 14 2,324

Oil Refining and MarketingSaudi European Petrochemical Company Ibn Zahr Saudi Arabia 98,832 10.0 SAR 98,832 14,851

Other operationsSilja Oyj Abp Helsinki 1,034,950 1.7 FIM 10,350 2,611Utility Competetive Advantage Fund L.L.C. USA – 11.1 – – 7,908

Complete list of shares and holdings is included in Fortum Corporation’s statutory financial statements.

31

Key financial indicators 1997–2001

1997 1) 1998 1999 2000 2001INCOME STATEMENTNet sales M€ 10,099 8,494 8,232 10,614 10,410 -change % 7.1 – 15.9 – 3.1 28.9 – 1.9 Share of profits (losses) of associated companies M€ 75 42 36 46 36Other operating income M€ 105 102 187 140 203Depreciation, amortisation and write-downs M€ – 470 – 505 – 523 – 571 623Other operating expenses M€ – 9,071 – 7,547 – 7,227 – 9,323 – 9,112Operating profit M€ 738 586 705 906 914 -of net sales % 7.3 6.9 8.6 8.5 8.8Financial income and expenses M€ – 244 – 218 – 211 – 273 – 212Profit before extraordinary items M€ 494 368 494 633 702 -of net sales % 4.9 4.3 6.0 6.0 6.7Extraordinary items M€ 326 – 5 460 – 10 –Profit before taxes M€ 820 363 954 623 702 -of net sales % 8.2 4.3 11.6 5.9 6.7Income taxes M€ – 89 – 123 – 229 – 154 – 160Minority interests M€ – 52 – 27 – 22 – 46 – 83Net profit for the period M€ 679 213 703 423 459

BALANCE SHEETFixed assets and other long-term investments M€ 8,992 9,244 9,724 11,712 11,328Current assets Inventories M€ 737 576 661 746 598 Receivables M€ 1,451 1,192 1,379 1,933 1,766 Cash and marketable securities M€ 663 564 775 437 602Shareholders’ equity M€ 3,930 3,975 4,705 5,022 5,485Minority interests M€ 294 210 126 1,281 1,270Provisions for liabilities and charges M€ 37 64 83 197 144Deferred tax liabilities M€ 888 1,078 1,128 1,177 1,122Interest-bearing debt M€ 4,476 4,462 4,593 5,063 4,276Interest-free debt M€ 2,218 1,787 1,904 2,088 1,997Total assets M€ 11,843 11,576 12,539 14,828 14,294

PROFITABILITYReturn on shareholders’ equity % 10.2 5.7 7.7 8.6 8.3Return on capital employed % 9.6 7.7 8.4 9.4 8.7

FINANCING AND FINANCIAL POSITIONInterest-bearing net debt M€ 3,813 3,898 3,818 4,626 3,674 -of net sales % 37.8 45.9 46.4 43.6 35.3Gearing % 90 93 79 73 54Equity-to-assets-ratio % 36 36 39 43 48

Net cash from operating activities M€ 756 793 524 424 1,145Cash flow before financing activities M€ 131 688 497 – 685 844

Dividends M€ 99 99 141 194 220 2)

Net interest expenses M€ 244 224 209 243 215Interest coverage 3.0 2.6 3.4 3.7 4.3

1) Fortum Group’s financial information for the reference year 1997 has been presented as if Fortum Power and Heat Oy (former Imatran Voima Oy) and Fortum Oil and Gas Oy (former Neste Oyj) had been combined into Fortum as of 1 January 1996.2) Board of Directors’ proposal.


1997 1) 1998 1999 2000 2001OTHER INDICATORSCapital employed M€ 8,700 8,647 9,425 11,365 11,032

Investments M€ 1,797 1,702 1,059 3,131 713 -of net sales % 17.8 20.0 12.9 29.5 6.8Research and development expenditure M€ 87 92 72 58 53 -of net sales % 0.9 1.1 0.9 0.5 0.5

Average number of employees 17,772 19,003 17,461 16,220 14,803

1997 1) 1998 1999 2000 2001SHARE-RELATED DATAEarnings per share (EPS) euro 0.45 0.27 0.41 0.55 0.57Cash flow per share euro 0.96 1.01 0.67 0.54 1.43Shareholders’ equity per share euro 5.01 5.06 6.00 6.32 6.49Dividend per share euro 0.13 0.13 0.18 0.23 0.26 2)

Dividend per earnings % 27.7 46.3 43.4 41.9 45.6 2)

Dividend yield % 2.5 4.0 5.3 5.5 2)

Price/earnings ratio (P/E) 18.5 10.9 7.9 8.3 Share prices At the end of the period euro 5.03 4.50 4.35 4.75 Average share price euro 5.66 4.76 4.18 4.79 Lowest share price euro 4.86 4.24 3.50 4.05 Highest share price euro 6.05 5.80 4.94 5.70 Market capitalisation at the end of the period M€ 3,949 3,532 3,456 4,017 Trading volumes Number of shares 1,7642,594 112,397,961 93,900,112 134,498,556 In relation to the weighted average number % 2.2 14.3 11.9 16.8 of shares 784,782,635 784,782,635 784,782,635 845,608,575 845,608,575Number of shares excluding own shares 784,782,635 784,782,635 784,782,635 794,571,055 845,608,575Adjusted average number of shares 784,782,635 784,782,635 784,782,635 787,223,036 798,346,433

1) Fortum Group’s financial information for the reference year 1997 has been presented as if Fortum Power and Heat Oy (former Imatran Voima Oy) and Fortum Oil and Gas Oy (former Neste Oyj) had been combined into Fortum as of 1 January 1996.2) Board of Directors’ proposal.

Formulae for the key financial indicators are presented on page 34.

33

QUARTERLY NET SALES BY BUSINESS OPERATIONS (SEGMENTS) 2001 2000M€ 2001 2000 Q4/01 Q3/01 Q2/01 Q1/01 Q4/00 Q3/00 Q2/00 Q1/00

Power, Heat and Gas 2,227 1,873 645 422 475 685 567 380 395 531Electricity Distribution 473 470 135 96 105 137 129 103 106 132Oil Refining and Marketing 7,223 7,807 1,636 1,863 1,772 1,952 2,219 1,984 1,923 1,681Oil and Gas Upstream 408 387 81 106 122 99 139 89 82 77Fortum Energy Solutions 603 887 87 150 197 169 284 203 215 185Other Operations 95 94 22 31 20 22 26 24 23 21Internal invoicing – 619 – 904 – 70 – 186 – 188 – 175 – 282 – 222 – 196 – 204

Net sales 10,410 10,614 2,536 2,482 2,503 2,889 3,082 2,561 2,548 2,423

QUARTERLY OPERATING PROFIT BY BUSINESS OPERATIONS (SEGMENTS) 2001 2000M€ 2001 2000 Q4/01 Q3/01 Q2/01 Q1/01 Q4/00 Q3/00 Q2/00 Q1/00

Power, Heat and Gas 367 211 114 41 49 163 63 2 44 102Electricity Distribution 135 127 30 24 25 56 34 25 19 49Oil Refining and Marketing 242 386 15 78 95 54 108 135 137 6Oil and Gas Upstream 196 213 33 46 68 49 84 46 41 42Fortum Energy Solutions 13 – 11 5 – 1 21 – 12 – 5 – 1 – 3 – 2Other Operations – 40 – 22 – 24 – 2 – 9 – 5 – 5 – 5 – 13 1Eliminations 1 2 – 2 – 1 2 2 4 – 1 – – 1

Operating profit 914 906 171 185 251 307 283 201 225 197


Formulae for the key financial indicators

Cash and marketable securities = Cash and cash equivalents + marketable securities

Return on shareholders’ = 100 x Profit before extraordinary items – taxes

equity (%) (Shareholders’ equity + minority interests) average

Return on capital employed (%) =

100 x Profit before extraordinary items + interest and other financial expenses

Capital employed average

Return on net assets (%) = 100 x Operating profit

Net assets average

Interest-bearing net debt = Interest-bearing debt – cash and marketable securities

Gearing (%) =

100 x Interest-bearing net debt

Shareholders’ equity + minority interests

Equity-to-assets ratio (%) =

100 x Shareholders’ equity + minority interests

Total assets – advances received

Interest coverage = Operating profit

Net interest expenses

Capital employed = Total assets – interest-free liabilities – deferred tax liabilities

– provisions for liabilities and charges

Profit before extraordinary items – taxes on regular business operations

Earnings per share (EPS) = – minority interests

Adjusted average number of shares during the period

Cash flow per share = Cash from operating activities


Shareholders’ equity per share = Shareholders’ equity

Adjusted average number of shares at the end of the period

Dividend per share = Dividends for the financial period


Dividend per earnings (%) =

100 x Dividend per share

Earnings per share

Dividend yield (%) =

100 x Dividend per share

Share price at the end of the period

Price/earnings ratio = Share price at the end of the period

Earnings per share

Average share price = Amount traded in euros during the period

Adjusted number of shares traded during the period

Market capitalisationat the end of the period

= Number of shares at the end of the period x share price at the end of the period

Trading volumes

= Number of shares traded during the period,

and in relation to the weighted average number of shares during the period

35

Income StatementM€ Note 2001 2000Net sales 1 51 51Other operating income 2 19 –Depreciation, amortisation and write-downs 3 – 1 –Other operating expenses 4 – 87 – 87Operating profit – 18 – 36

Financial income and expenses 5 183 65Profit before extraordinary items 165 29

Extraordinary itemsGroup contributions 335 220Profit before appropriations and taxes 500 249

Appropriations 6 – 1 –Income taxes 7 – 152 – 74Net profit for the period 347 175

Balance sheet M€ Note 2001 2000ASSETSFixed assets and otherlong-term investments 8,9Intangible assets 4 1Tangible assets 5 2Other long-term investments 7,162 7,008 7,171 7,011

Current assetsShort-term receivables 10 522 525Investments 11 149 –Cash and cash equivalents 141 110 812 635 7,983 7,646

SHAREHOLDERS’ EQUITY AND LIABILITIESShareholders’ equity 13Share capital 2,875 2,875Share premium 2,778 2,778Retained earnings 270 290Net profit for the period 347 175 6,270 6,118

Accumulated appropriationsAccumulated depreciation above the plan 1 1

Long-term liabilitiesInterest-bearing 14 189 202

Short-term liabilities 14 Interest-bearing 1,461 1,245Interest-free 62 80 1,523 1,325 7,983 7,646

Cash flow statementM€ Note 2001 2000Cash flows from operating activitiesProfit before extraordinary items 165 29Depreciation, amortisation and write-downs 1 6Financial income and expences – 183 – 65Divesting activities, net – 18 –Operating profit before change in working capital – 35 – 30

Change in working capital Decrease (+)/increase (–) in interest free trade 5 – 13 and other short-term receivables Decrease (–)/increase (+) in interest free liabilities – 6 8 – 1 – 5

Cash generated from operations – 36 – 35

Interest and other financial expences received, net 18 9Dividends received 163 0Group contribution received 220 511Income taxes paid – 178 – 153Realised foreign exchange gains and losses – 22 – 39Net cash from operating activities 165 293

Cash flows from investing activitiesCapital expenditures – 9 – 3Acquisition of shares in subsidiaries – – 50Investments in shares in associated companies – 1 –Investments in other shares – 1 – 1Proceeds from sales of shares in subsidiaries net of cash disposed 2 –Proceeds from sales of shares in associated companies 47 –Change in other investments, increase (–), decrease (+) – 44 – 1,115Cash flow from investing activities – 6 – 1,169

Cash flow before financing activities 159 – 876

Cash flows from financing activitiesPayment of (–)/proceeds from (+) short-term borrowings 241 938Proceeds from long-term liabilities – 189Payment of long-term liabilities – 25 –Dividends paid – 195 – 141Other financing activities – – 1Cash flow from financing activities 21 985

Net increase (+)/decrease (–) 180 109in cash and marketable securities

Cash and marketable securities at the beginning of the period 110 1Cash and marketable securities at the end of the period 290 110Net increase (+)/decrease (–) in cashand marketable securities 180 109

Parent company income statement, balance sheet and cash flow statement


Notes to the financial statementsM€ 2001 2000

1. Net sales by market area Finland 51 51

2. Other operating income Gains on the sales of fixed assets 19 –

3. Depreciation, amortisation and write-downs Depreciation and amortisation according to the plan 1 –

4. Other operating expenses Personnel expenses Wages and salaries 20 19 Indirect employee costs Pension costs 4 3 Other indirect employee costs 9 7 Other operating expenses 54 58 Total 87 87 Salaries and remunerations President and CEO and members of the Board of Directors 1 1

Average number of employees 377 385 5. Financial income and expenses Income from Group companies 162 – Income from associated companies 1 1 Other interest and financial income from Group companies 85 88 Other interest and financial income 17 8 Exchange rate differences – 4 64 Interest and other financial expenses to Group companies – 63 – 56 Interest and other financial expenses – 15 – 40 Total 183 65 Total interest income and expenses Interest income 102 94 Interest expenses – 77 – 88 Net interest income 25 66

M€ 2001 2000

6. Appropriations Depreciation above the plan 1 –

7. Income taxes Taxes on regular business operations 55 10 Taxes on extraordinary items 97 64 Total 152 74

8. Fixed assets and other long-term investments Intangible assets Other long-term expenditure 4 1 Tangible assets Machinery and equipments 3 2 Advances paid and construction in progress 2 – Total 5 2 Other long-term investments Shares in Group companies 5,801 5,802 Receivables from Group companies 1,327 1,162 Shares in associated companies 5 33 Receivables from associated companies 11 9 Other shares and holdings 3 2 Other receivables 15 – Total 7,162 7,008

9. Change in acquisition cost Intangible assets Other Total long-term expenditure

Acquisition cost as of 1 Jan 2001 1 1 Increases 5 5 Decreases 1 1 Acquisition cost as of 31 Dec 2001 5 5 Accumulated depreciation, amortisation and write-downs as of 1 Jan 2001 – – Depreciation and amortisation for the period 1 1 Accumulated depreciation, amortisation and write-downs as of 31 Dec 2001 1 1

Balance sheet value as of 31 Dec 2001 4 4 Balance sheet value as of 31 Dec 2000 1 1

37

Investments Shares Receivables Shares Receivables Other Other Total in from in from shares receivables Group Group associated associated and companies companies companies companies holdings

Acquisition cost as of 1 January 5,802 1,162 33 9 2 – 7,008Increases – 635 1 2 1 15 654Decreases 1 470 29 – – – 500Acquisition cost as of 31 December 5,801 1,327 5 11 3 15 7,162

Balance sheet value as of 31 Dec 2001 5,801 1,327 5 11 3 15 7,162Balance sheet value as of 31 Dec 2000 5,802 1,162 33 9 2 – 7,008

M€ 2001 2000

10. Short-term receivables Receivables from Group companies Trade receivables 7 16 Other receivables 368 406 Accrued income and prepaid expenses 13 12 Total 388 434

Receivables from associated companies Accrued income and prepaid expenses 2 1 Total 2 1

Other receivables 7 – Accrued income and prepaid expenses 125 90 Total 522 525

11. Investments Market value 149 Book value 149 Difference –

M€ 2001 2000

12. Pension commitments to corporate management The executive directors of Fortum Corporation are eligible for retirement at the age of 60.

13. Changes in shareholders’ equity Share capital as of 1 January 2,875 2,640 Scrip issue – 28 Share issue – 207 Share capital as of 31 December 2,875 2,875

Share premium as of 1 January 2,778 2,780 Scrip issue – – 28 Increase in share premium – 26 Share premium as of 31 December 2,778 2,778 Retained earnings as of 1 January 465 432 Dividends paid – 194 – 141 Other distribution – 1 – 1 Net profit for the period 347 175 Retained earnings as of 31 December 617 465 Distributable funds as of 31 December 617 465

Tangible assets Machinery Advances Total and paid and equipment construction M€ in progres

Acquisition cost as of 1 Jan 2001 2 – 2Increases 2 2 4Decreases – – –Acquisition cost as of 31 Dec 2001 4 2 6

Accumulated depreciation, amortisation and write-downs as of 1 Jan 2001 – – –Depreciation and amortisation for the period 1 – 1Accumulated depreciation, amortisation and write-downs as of 31 Dec 2001 1 – 1

Balance sheet value as of 31 Dec 2001 3 2 5Balance sheet value as of 31 Dec 2000 2 – 2


M€ 2001 2000

14. Liabilities Long-term liabilities Convertible bonds – 4 Loans from financial institutions 181 189 Other long-term liabilities to Group companies 8 9 Total 189 202 of which interest-bearing 189 202

Short-term liabilities Bonds – 3 Convertible bonds 4 Loans from financial institutions 8 563 Trade payables 3 2 Liabilities to Group companies Trade payables 8 9 Bonds – 13 Other liabilities 1,446 652 Accruals and deferred income 4 6 Total 1,458 680 Liabilities to associated companies Other liabilities 3 1 Total 3 1 Other short-term liabilities 4 50 Accruals and deferred income 43 26 Total 1,523 1,325 of which interest-bearing 1,461 1,245 Interest-bearing and interest-free liabilities Interest-bearing liabilities 1,650 1,447 Interest-free liabilities 62 80 Total 1,712 1,527

M€ 2001 2000

Short-term accruals and deferred income Interests 18 21 Other short-term accruals and deferred income 30 11 Total 48 32

Maturity of long-term liabilities Year 2002 13 2003 3 2004 4 2005 177 2006 and later 5 Total 202

15. Bonds, debentures and other notes Issuing year Maturity year 2001 2000 1994 FIM-loan 2001 – 3

16. Contingent liabilities Undertakings on behalf of Group companies Guarantees 238 72 Other contingent liabilities – 71 Total 238 143

Undertakings on behalf of associated companies Guarantees 153 140

Contingent liabilities total 391 283

DerivativesM€ 2001 2000 Contract Fair Not recog- Contract Fair Not recog-Interest and or notional value nised as or notional value nised ascurrency derivatives value an income value an incomeInterest rate swaps 1,781 31 40 1,656 8 16Forward foreignexchange contracts 1), 2) 4,570 – 16 – 4,349 17 –Currency swaps 1,565 121 – 1 1,577 69 – 1Purchased currency options 239 – 4 – 155 1 –Written currency options 239 4 – 155 – 1 –

1) Includes also closed forward and future positions2) Includes also contracts used for equity hedging

39

Shares and shareholders

Share capital in 2001During 2001, there were no changes in the share capital of Fortum Corporation. By the end of the year, a total of 845,608,575 shares had been issued. The nominal value of the share is EUR 3.40, and each share entitles the holder to one vote at the annual general meeting. All shares entitle holders to an equal dividend.

In accordance with the Articles of Asso-ciation, at the end of 2001, Fortum Corpora-tion’s share capital may range between a

Development of share capital 1998–2001

No. of new No. of Increase in share New share shares shares, total capital, EUR capital, EUR

Fortum established on 7 Feb 1998 500,000 500,000 1,681,879 1,681,879Rights issue on 3 June 1998 293,104,055 293,604,055 985,931,265 987,613,144Rights issue on 29 June 1998 397,906,226 691,510,281 1,338,460,462 2,326,073,606Rights issue on 17 Dec 1998 91,272,354 782,782,635 307,018,159 2,633,091,765Employee offering on 18 Dec 1998 2,000,000 784,782,635 6,727,517 2,639,819,282Scrip issue on 17 April 2000 – 784,782,635 28,441,677 2,668,260,959Rights issue 30 Sept 2000 60,825,940 845,608,575 206,808,196 2,875,069,155Share capital on 31 Dec 2001 845,608,575 2,875,069,155

minimum of EUR 2 billion and a maximum of EUR 8 billion. Within these limits, it can be increased or decreased without changing the Articles of Association. Fortum Corpora-tion’s share capital on 31 December 2001, paid in its entirety and entered in the trade register, was EUR 2,875,069,155.

Fortum Corporation’s shares are in the Finnish book-entry securities system main-tained by the Finnish Central Securities Depository Ltd.

Quotation of sharesFortum Corporation’s shares are quoted on the Helsinki Exchanges. The first trading date was 18 December 1998. The shares

are also traded in London in the SEAQ trading system.

At the end of the year, Fortum Corpora-tion’s lot size was 200 shares.

Fortum’s shareholders as of 31 December 2001

No. of shares HoldingShareholder 1,000 %

Finnish State 598,196,606 70.74Social Insurance Institution 16,753,696 1.98Ilmarinen Mutual Pension Insurance Company 8,996,600 1.06Varma-Sampo Mutual Pension Insurance Company 6,863,000 0.81The town of Kurikka 6,203,500 0.73Fortum Pension Foundation 5,034,952 0.60Pohjola Non-Life Insurance Company Limited 3,700,000 0.44Suomi Mutual Life Assurance Company 3,150,000 0.37Tapiola Mutual Pension Insurance Company 3,146,176 0.37LEL Employment Pension Fund 2,891,383 0.34Nominee registrations 85,481,721 10.11Other shareholders in total 105,190,941 12.45Total number of shares 845,608,575 100.00


Distribution of ownership of shares as of 31 December 2001

No. of % of share- No. of % of shareNo. of shareholders shares capitalshares holders

1– 100 2,783 5.22 186,740 0.02

101 – 500 21,677 40.67 5,777,696 0.68501 – 1,000 16,343 30.66 10,554,853 1.25

1,001 – 10,000 11,873 22.27 29,172,317 3.45

10,001 – 100,000 523 0.98 13,422,917 1.59

100,001 – 1,000,000 82 0.15 28,370,610 3.36

1,000,001 – 10,000,000 19 0.04 62,678,535 7.41over 10,000,000 3 0.01 695,358,711 82.23 53,303 100.00 845,522,379 99.99

Unregistered/uncleared transactions as of 31 December 2001 86,196 0.01Total 845,608,575 100.00of which nominee registrations 85,481,721 10.11

State ownershipAt the beginning of 2001, the Finnish State owned 70.74% of the company’s shares, while its share of the voting rights was 75.29%, as the shares owned by Fortum Power and Heat Oy did not carry any voting rights. At the end of the year, the Finnish State’s ownership of both the shares and voting rights was 70.74%.

The Finnish Parliament has authorised the Government to reduce the Finnish State’s holding in Fortum Corporation to no less than 50.1% of the share capital and voting rights.

Distribution of ownership of shares by owner category as of 31 December 2001

% of % of shareOwner category owners capital

Private non-financial corporations 2.65 0.93Public non-financial corporations 0.02 0.03Financial and insurance institutions 0.24 3.71General government 0.16 78.60Non-profit organisations 0.54 0.79Households 95.52 5.73Outside Finland and nominee registrations 0.87 10.20Unregistered/uncleared 0.01Total 100.00 100.00

Sales of own sharesFortum Power and Heat Oy, a wholly-owned subsidiary of Fortum Corporation, sold its entire holding of 51,037,520 shares in Fortum Corporation through transactions executed on the Helsinki Exchanges on 4 December 2001. The shares represented 6.04% of the company’s shares outstand-ing, and have a nominal value of EUR 173,527,568. The shares were placed at EUR 4.65 per share, raising total proceeds of EUR 237 million. Fortum Power and Heat Oy had obtained possession of the shares in September 2000 in connection with the merger of Länsivoima Oyj.

41

Management holdings and stock optionsOn 31 December 2001, the members of the Supervisory Board of Fortum Corpora-tion owned a total of 351 shares or 0.00% of the shares and voting rights. The mem-bers of the Board of Directors, the President and CEO, and the Group Executive Vice President owned a total of 9,086 shares, which corresponds to 0.00% of the compa-ny’s shares and voting rights. The members of the Board of Directors, the President and CEO and the Group Executive Vice Presi-dent owned a total of 950 of stock options from 1999, which entitle them to a subscrip-tion of a total of 950,000 Fortum Corporation shares on certain conditions, and a total of 900,000 of stock options from 2001, which entitle them to a subscription of a total of 900,000 stock options in Fortum Corpora-tion shares on certain conditions.

Bond loan with warrants to employees and management stock option schemeWe have three incentive systems tied to the share. Two of these were launched in 1999 and one in 2001.

Management stock option scheme (1999)In this scheme, a maximum of 15,000 stock options can be issued to a maximum of 150 key members of Fortum Group’s employees. The stock options entitle the holders to sub-scribe for a maximum of 15 million Fortum Corporation shares in the period from 1 October 2002 and 1 October 2005. These shares correspond to 1.8% of the company’s present share capital and voting rights. As a result of the subscriptions made as part of the management stock option scheme, Fortum’s share capital may rise, in total, by a maximum of EUR 51 million. At the end of 2001, 117 people were members of this scheme, with a total of 11,910 stock options.

The precondition for the subscription is that the comparison between Fortum’s earn-ings per share in 1998 and the average of the earnings per share in 1999–2001 will show that Fortum’s earnings per share per-formance is equal to, or better than, its peer group average. Another precondition for the subscription of shares in connection withthe stock options is that Fortum’s trade-vol-

ume weighted average share price perform-ance between the periods 1 April 1999–31 August 1999 and 1 April 2002–31 August 2002 is equal to, or better than, its peer group average.

The subscription price is the trade-volume weighted average quotation of the period 1 January 2002–30 June 2002.The subscription price is decreased by twice the percentage by which Fortum’s share price performance will exceed the share price performance of the peer group between the periods 1 April 1999 –31 August 1999 and 1 April 2002–31 August 2002. However, the subscription price of the share is at the minimum the trade-volume weighted average quotation of the period 18 December 1998–15 January 1999, i.e. EUR 5.61. The subscribed shares entitlethe holder to a dividend for the accounting period during which the shares are sub-scribed for. In spring 2001, Fortum’s Board of Directors decided to close the 1999 option scheme. Therefore, unsubscribed stock options under the scheme will no longer be distributed to the employees.

Bond loan with warrants to employees (1999)The maximum amount of the bond loan with warrants to employees was FIM 25 million (EUR 4.2 million). The loan period is three years, at an annual interest of 4%. The loan, including the interest, will be repaid in one instalment on 17 May 2002.

A total of 25,000 bond loan stakes at a nominal value of EUR 168.19 (FIM 1,000) per stake were offered, with each stake car-rying 300 share warrants. Each warrant may be exercised to subscribe for one Fortum Corporation share. At the end of 2001, the bond loan amounted to EUR 3.6 million. As a result of the subscriptions relating to the bond loan with warrants to employees, For-tum’s share capital may be increased by a maximum of EUR 22.1 million, or 6.5 million new shares, corresponding to 0.8% of the company’s share capital today.

The shares connected with this bond loan are open for subscription during 17 May 2002–17 May 2005. The subscrip-tion price is the trade-volume weighted average price of Fortum’s shares during 1 March 1999–31 March 1999, increased by 10%. Any dividends per share paid as of


1 January 2000 up to the date of subscrip-tion for the shares will be deducted from the subscription price. The subscription price is a maximum of EUR 4.62. The shares subscribed for entitle the holder to distri-bution of a dividend for the accounting period during which the shares will be subscribed for.

Stock option scheme to key employees (2001)The stock option programme for Fortum’s key employees comprises 24 million war-rants, 8 million of which will be marked with the symbol 2001A, 8 million with 2001B and 8 million with 2001C. With the fulfilment of the terms of subscription, the warrants en title to subscription of a maximum of 24 million Fortum Corporation shares. The war-rants can be exchanged for shares consti-tuting a maximum of 2.7% of the company’s present shares and voting rights. As a result of subscriptions made as part of this stock option scheme to key employees, Fortum’s share capital may rise, in total, by a maxi-mum of EUR 81.6 million. At the end of 2001, the stock option scheme covered 358 people with a total of 13,287,500 war-rants. The warrants were divided as follows: 5,475,000 of warrant 2001A, 7,812,500 of warrant 2001B, and 0 of warrant 2001C.

The subscription price for warrant 2001A shall be the trade-volume weighted average quotation of the Fortum Corporation share on the Helsinki Exchanges between 1 April 2001 and 31 March 2005, for warrant 2001B the trade-volume weighted average quota-tion of the Fortum Corporation share on the Helsinki Exchanges between 1 October 2001 and 30 September 2005, and for war-rant 2001C the trade-volume weighted aver-age quotation of the Fortum Corporation share on the Helsinki Exchanges between 1 April 2002 and 31 March 2006.

The development of the Fortum Corpora-tion share is compared to a European utili-ties index. The subscription price of the war-rants is decreased by twice the percentage by which the appreciation of the Fortum Cor-poration share price will exceed the appre-ciation of the comparison index during the period for determination of the subscription price, as well as by the amount of the cash dividends distributed during the period for determination of the subscription price.

The above determined share subscrip-tion price shall nevertheless always amount to at least the trade-volume weighted aver-age quotation of the Fortum Corporation share on the Helsinki Exchanges between1 April and 30 April 2001 (EUR 4.47).The subscription price is decreased by the amount of the cash dividend distributed after the beginning of the period for deter-mination of the subscription price but before the date of the share subscription.

The subscription period will be stag-gered, beginning on 15 October 2005, 15 January 2006 and 15 April 2006, and ending for all warrants on 1 May 2007. The subscription period, however, does not begin with any warrants unless the share quotation of the Fortum Corporation share during calendar years 2001–2004 has developed at least as well as the Euro-pean utilities index, and unless the average profit per share for four successive years, after 31 December 2000, is 105% of the average profit per share for the financial years 1998–2000, rectified of exceptional entries.

Other convertible bond loans, bonds with warrants, and unused authorisationsFortum Corporation has issued no other convertible bonds or bonds with warrants, which would entitle the bearer to subscribe for Fortum shares. The Board of Directors of Fortum Corporation has today no unused authorisations from the general meeting of shareholders to issue convertible bond loans or bonds with warrants, increase the company’s share capital or acquire for the company’s own shares.

Quotation and trading or sharesThe highest quotation of Fortum Corpora-tion’s shares on the Helsinki Exchanges in 2001 was EUR 5.70, the lowest EUR 4.05, and the middle-market quotation EUR 4.79. The closing quotation on the last trading day of the year was EUR 4.75.

A total of 134.5 million shares for a total of EUR 644.7 million was traded during 2001. Fortum’s market capitalisation, calcu-lated using the closing quotation on the last trading day of the year, was EUR 4,017 million.

43

Proposal for the distribution of retained earnings

The Group’s non-restricted equity and distributable equity as of 31 December 2001 amounted to EUR 2,503 million. The parent company’s distributable equity as of 31 December 2001 stood at EUR 617,432,554.99.The Board of Directors proposes that Fortum Corporation should pay a dividend of EUR 0.26 per share, totalling EUR 219,858,229.50. The rest of the distributable equity will be carried over to retained earnings.

Espoo, 13 February 2002

Matti Vuoria Heikki Pentti Birgitta Kantola Lasse Kurkilahti Antti Lagerroos Hans von Uthmann Erkki Virtanen Mikael Lilius President and CEO


Auditors’ report

To the shareholders of Fortum Corporation

We have audited the accounting, the financial statements and the corporate govern-ance of Fortum Corporation for the period from 1 January to 31 December 2001. The financial statements, which include the report of the Board of Directors, consoli-dated and parent company income statements, balance sheets and notes to the financial statements, have been prepared by the Board of Directors and the President and CEO. Based on our audit we express an opinion on these financial statements and on corporate governance.

We have conducted the audit in accordance with Finnish Standards on Auditing. Those standards require that we perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining on a test basis evidence supporting the amounts and disclosures in the Financial statements, assessing the accounting principles used and significant estimates made by the management as well as evaluating the overall financial state-ment presentation. The purpose of our audit of corporate governance is to examine that the members of the Supervisory Board and the Board of Directors and the President and CEO have legally complied with the rules of the Companies’ Act.

In our opinion, the financial statements have been prepared in accordance with the Accounting Act and other rules and regulations governing the preparation of financial statements. The financial statements give a true and fair view, as defined in the Accounting Act of both the consolidated and the parent company ’s result of opera-tions as well as of the financial position. The financial statements with the consolidated financial statements can be adopted and the members of the Supervisory Board and the Board of Directors and the President and CEO of the parent company can be discharged from liability for the period audited by us.

The proposal by the Board of Directors regarding the distributable funds is in compliance with the Companies Act.


SVH PricewaterhouseCoopers OyAuthorised Public Accountants

Pekka KaasalainenAuthorised Public Accountant

45

Statement by the Supervisory Board

The Supervisory Board has reviewed Fortum Corporation’s income statement, balance sheet, notes to the financial statements, consolidated financial statements, report on activities, and the Board of Directors’ proposal contained in the latter for the disposal of retained earnings, and the auditors’ report provided by the Company’s auditors. The Supervisory Board has no comments to make on these. The Supervisory Board recom-mends that the income statement, balance sheet, consolidated financial statements and balance sheet be adopted and concurs with the Board of Directors’ proposal for the allocation of profit.

The Supervisory Board is satisfied that its decisions and instructions have been followed and that it has received adequate information from the Board of Directors and the Company’s management.


Ben Zyskowicz

Henrik Aminoff Tuija Brax Kaarina Dromberg

Klaus Hellberg Rakel Hiltunen Harri Holkeri

Jorma Huuhtanen Mikko Immonen Kyösti Karjula

Tanja Karpela Jouko K. Leskinen Leena Luhtanen

Pertti Mäki-Hakola Matti Vanhanen Sirkka Vilkamo

Financial Statements 2001Fortum

Documents

Fortum Annual Report 2001 · NExOCTANE A technology developed by Fortum for the manufacture of iso-octane used as high quality gasoline component substituting MTBE. PAO Polyalphaoleﬁ